EU State Building Contracts: early lessons from the EU's new budget support instrument for fragile states

Research reports and studies
February 2015
The European Union (EU) began using State Building Contracts (SBCs) to provide budget support to fragile and conflict affected states in early 2013.  Over the next five years, the EU plans to use more than two thirds of funding under the 11th European Development Fund and over half from the Development Cooperation Instrument for 2014–2020 to assist people in fragile situations. The State Building Contract is a key instrument in the EU’s fragile states toolkit, and thus likely to increase in visibility and importance. At the same time, while most European Member States’ development agencies are gradually shifting away from the use of budget support, they continue to provide fiscal support in fragile states through the EU’s SBCs and through budget support-like instruments.

The EU’s early experience with implementing SBCs could therefore provide a useful resource for donor agencies to inform their thinking on providing budget support in fragile states. This paper draws preliminary lessons from case studies on the two largest SBCs adopted by the EU in sub-Saharan Africa: Mali, a country in transition after a period of crisis; and South Sudan, a chronically fragile country.

An analysis of these cases highlights general insights which could influence and shape future programming:

·         A design tension between supporting short-term stabilisation or crisis management, and longer-term state-building objectives, can be resolved by clarifying objectives and tailoring the instrument to the objectives.

·         Volatility is a key characteristic of fragile states, requiring closer and more frequent risk monitoring. Risk management can be improved by ensuring risks are monitored more regularly, and by adopting a wider definition of political risk.

·         The political economy of fragile states – especially fragmented authority within government – can hinder effective political dialogue around budget support. There needs to be sufficient buy-in by the partner country, or alternatively, verification that any triggers or indicators are within the control of the main dialogue partner.

·         Accompanying SBCs with technical assistance (or complementary support) is a positive step. Nevertheless, a more strategic and flexible approach, which links technical assistance to objectives and which is responsive to changing government requirements, could increase the impact of SBCs.