Evaluation Methods for Budget Support

The discussion on aid modalities is at the core of the international aid effectiveness debate. Arguably the most contentious issue in this debate is the move by many bi- and multilateral donors to channel their aid through programme-based approaches, and in particular through general and sector budget support. By doing so, donors hope to improve the impact of the provided resources by reducing transaction costs, eliminating parallel structures and procedures, and strengthening government institutions and processes.

At the same time, donor agencies are faced with an increasing demand by their domestic constituencies to produce sound evidence for the effectiveness of their aid in general, and of budget support in particular, not least to legitimize the increasing use of these aid modalities.
Producing such evidence is thus key, both for the evaluation of individual budget support programmes as well as for the broader discussion on modalities for more effective aid. However, producing this evidence poses a serious methodological challenge. Against the background of existing approaches to evaluate budget support and other programme-based aid, three core questions can be identified:

1. How can direct and indirect effects of budget support resources be rigorously assessed against the multi-dimensional objective function of budgetary aid (MDG financing and PRSP implementation, governance and democratic accountability, etc.)? In particular: How can the impact of non-financial contributions to budget support programmes (policy dialogue, conditionality, capacity building) be evaluated with theory-based and rigorous methods?

2. How can methods for rigorous impact evaluation be further improved for those sectors where in which they are already fairly well-established (such as education or health) and how can they be adapted to assess impact in other sectors or cross-cutting issues such as governance, decentralisation, gender, HIV/AIDS, private sector development, etc.?

3. How can the attribution gap that continues to exist between measured impact of government policies and budget support inputs (financing, policy dialogue, conditionality, capacity building) be bridged within the framework of a theory-based and methodologically sound evaluation approach?

By doing so, the project outcome was to inform both donors and recipients of budget support on the determinants of the aid instruments effectiveness and thus inform evidence-based policy making on both sides of the aid relation.