Budget Support - Risks

Risks

The risks for donor governments and recipient governments are very different. The literature describes a range some of which are summarised below.

For the donor government the risks include:

1. Political risk of a recipient government doing something high profile and unpalatable
2. Fiduciary risk of putting resources into weak systems or supporting poor policies (but this is partly the point of budget support also). This type of risk includes that of corruption in the recipient government.
3. Loss of profile- donors tend to like to be able to report on specific outputs that they are responsible for, which is not possible with budget support

For the recipient government the risks include:

1. Much greater levels of intrusion by donors in your budget process
2. Reduced levels of flexibility about the allocation of resources, which with time may undermine the incentives for improving the efficiency of public spending
3. Increased volatility and unpredictability of aid flows
4. Increased vulnerability to ‘aid shocks’ if donors decided to withdraw funding