The Role of Budget Aid in Stabilizing Fragile States

Local villagers participate in a shura to discuss a massive irrigation project and other training programs in Afghanistan. The projects are part of the capacity building effort in the country. Photo by: Sarah R. Webb / isafmedia / CC BY

Instead of viewing budget support as a dole out, donors should use aid instruments to support the transition of fragile states into independent, stable nations, a new report argues.

The report, titled “Providing Budget Aid In Situations of Fragility” put together by the World Bank and African Development Bank, examines ways on how to improve the coordination and pooling of risk management in giving out budget aid in “situations of fragility” among the World Bank, AfDB, European Commission and International Monetary Fund. 

“[R]ather than viewing budget aid as simply a transfer of financial resources to the country’s budget, and with a narrow focus on public financial management, it should be considered as a key element of an aid package that consists of evidence-based policy dialogue, analytical work, technical assistance, capacity building activities, as well as financial transfers,” the report says.

In combination with other aid instruments, budget aid, according to the report, can help promote macro-budgetary and political stability, peace and state-building, and strengthen the capacity of recipient countries. 

The report suggests “more predictable and targeted” use of budget aid in fragile states by moving toward programmatic support, where possible, with a series of single-tranche operations. Donors should also consider “non-traditional areas” of budget support that could promote stability and state legitimacy such as security sector reform, rule of law and justice and job creation.

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About the author

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    Ma. Rizza Leonzon

    As a former staff writer, Rizza focused mainly on business coverage, including key donors such as the Asian Development Bank and AusAID.