MercoPress. South Atlantic News Agency

European Commission told to tighten controls on aid to avoid ‘waste and leakage’

The Court of Auditors based in Luxembourg audits EU finances

The European Court of Auditors has called on the European Commission to assess the high risks involved, including corruption, when large sums of EC aid are channelled directly through public budgets in developing countries in Latin America, Africa and Asia.

One of the countries mentioned in the report refers to Mercosur member Paraguay that between 2003 and 2009 received 78 million Euros in budget support with EC not taking the necessary short term measures to address “the risk of leakages, inefficiencies, waste and the corruption issue”.

The report refers to Transparency International listing, which has Paraguay “among the most corrupt countries in Latin America” ranked 154 in 2009.

Budget support is the EC preferred aid modality and almost 50% - or about €11 billion during the period 2008-2013 - of the 10th European Development Fund is planned to be disbursed in this manner.

In practical terms budget support entails the transfer of large amounts of funds directly to the state budgets of selected partner countries.

The report points out that the delivery of aid through budget support has several potential advantages over the traditional project approach. Larger volumes of aid can be supplied in a more predictable manner.

Moreover, this form of aid can be used to encourage improvement of public financial management and help increase accountability. Budget support can also facilitate and strengthen policy dialogue with recipient countries as well as improve coordination between donors.

The European Court of Auditors has analysed the effectiveness of such a method and concludes that the EC has made considerable efforts to develop and improve its approach to budget support, but “there are still weaknesses in how it sets up and manages its programs”, effectiveness must be improved.

Furthermore the rationale followed by the EC in deciding on the amount of funds to be allocated in each country is not clear: EC “should demonstrate that the amount allocated to individual programmes is appropriate in view of the objectives and the framework for dealing with risks and benefits”.

The Court or Auditors says insufficient attention has been given “to the need to strengthen oversight bodies such as Parliaments, civil society organisations and Supreme Audit Institutions, seeking to monitor government use of budgetary resources”.

The report also points out that an evaluation methodology, which provides evidence on whether, and in what circumstances, budget support can make an effective contribution to poverty reduction has not yet been established.

The EC should improve its reporting on the effectiveness of its budget support programs.

In Latin America the countries most benefited from the budget support are Honduras, Nicaragua, Paraguay and El Salvador.

Regarding Paraguay’s share aid amounts to 127 million Euros distributed among education, 89 million; fighting poverty, 20 million and 18 million for economic integration.