The rise and fall of budget support: Ownership, bargaining and donor commitment problems in foreign aid

Abstract

Motivation: Budget support is the form of aid most commonly associated with recipient-country ownership. However, a number of scholars and practitioners have criticized the approach as masking new forms of conditionality. Was budget support simply a guise for increasing donor influence in recipient countries? How can we explain the rapid shift towards budget support, as well as the rapid decline in its popularity after only a few years? Purpose: We use a bargaining framework to explain the rise and fall of budget support. Contrary to explanations that suggest that budget support was a normative decision by donors designed to increase aid effectiveness by fostering ownership, a bargaining framework emphasizes that aid policy is the result of sustained negotiations between donors and recipients. These negotiations, however, are constrained by donors' inability to deliver aid as promised. Approach: We use a Nash bargaining framework to formalize the predictions of a bargaining model. From the model, two testable predictions emerge: (1) in exchange for more credible commitments, recipient governments are willing to selectively offer donor agencies greater access to and influence over domestic policy decision-making; and (2) in exchange for such influence, donor agencies are willing to exert less pressure on recipients to be politically inclusive. We then test the implications of the model using case-study evidence from Rwanda and Tanzania. Findings: The empirical data, based on over 80 interviews with practitioners over several periods of research in both countries, provide substantial evidence in support of the model's core assumptions and predictions. Contrary to claims that budget support increased recipient-country ownership, interviews (identified as personal communications) suggest that, in exchange for more credible commitments, recipient governments were willing to grant donors greater access and influence. In return, donor agencies reduced demands on the recipient government regarding political inclusivity, tacitly accepting arrangements that centralized decision-making and excluded civil society. When donor agencies could no longer provide budget support as promised, these negotiated arrangements broke down. Policy Implications: The findings challenge a common narrative that donors embraced budget support because of a normative commitment to ownership. They also demonstrate the value of a bargaining framework.

To understand the implications of different aid modalities, we need to analyse the bargaining logic between donors and recipient governments*

“…Finally, Dijkstra critiques our article by claiming that newer work on budget support proves its effectiveness. While aid effectiveness is an important point of discussion, it is not what we studied in Swedlund and Lierl (2020). Rather, we provided a theoretical framework for understanding the implications of different aid modalities, such as budget support or project aid, for bargaining on development policy between donors and aid-recipient governments.…”

“…Dijkstra critically engages with our article "The rise and fall of budget support: Ownership, bargaining and donor commitment problems in foreign aid" (Swedlund & Lierl, 2020), published as a part of a special issue on "Ownership in a post-aid effectiveness era: Comparative perspectives", guest-edited by Niels Keijzer and David Black. We appreciate the discussion of our work and the evolving debate, which will help to advance our understanding of different aid modalities and their implications for development policy.…”

“…In Swedlund and Lierl (2020), we argue that the key to understanding the implications of budget support for development policy priorities is the underlying bargaining logic between donor agencies and the governments of recipient countries. Our premise is that foreign aid, regardless of whether it is provided in the form of budget support or project aid, always involves political bargaining between donors and recipients.…”

Completing abandoned public facility projects by the private sector: results of a Delphi survey in the Iranian Water and Wastewater Company

“…Completion of abandoned projects is one of the major concerns of governments struggling with budget issues (Swedlund and Lierl, 2019). This happens because to accomplish projects, the public sector faces macro and micro risks.…”

Special issue introduction Ownership in a post‐aid effectiveness era: Comparative perspectives

“…Swedlund and Lierl (2020) focus on a specific and prominent approach to development co‐operation, namely the provision of budget support. This modality was once considered to directly enable ownership, yet has equally been criticized as a new approach to conditionality and donorship.…”