Understanding State-Building Contracts in Fragile Situations
State-building contracts play a crucial role in supporting countries in fragile situations by promoting good governance, oversight, and combating corruption. These contracts, introduced in 2012 by the EU, focus on vital state functions and basic service delivery. Requirements such as stable economic frameworks, sound public policies, transparent budgeting, and effective oversight are crucial for operation approval. The EU has developed such contracts with 21 countries, reflecting a successful approach to addressing fragility.
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SAIs, important actors in fragile situations Susanne Wille European Commission September 2017
State-building must be holistic, including appropriate means of oversight. Countries in fragile situations have high risks. SAI are instrumental to a state's good functioning and to the fight against corruption, fraud and mismanagement.
Different types of support to SAI: Capacity development projects TA, equipment and infrastructure Policy and political dialogue Budget support is dependent on a well-functioning SAI and promotes oversight.
'State Building Contract' In a context of fragility, the Commission has a specific form of budget support instrument at its disposal. "to be used when situations of fragility or transition require action to help partner countries to ensure vital state functions and to deliver basic services to the population"
State Building Contracts are Budget Support : Four Pillars Backward looking (performance) Forward looking (Risk management) Budget Allocation Fiscal Space Eligibility criteria Policy dialogue Financial Support Capacity Developt Results Performance Indicators Effective institutions Focus on PFM 5
For State Building Contracts the same eligibility criteria apply: 1) A stable marco-economic framework 2) Sound public policies and reforms 3) Good or improving public financial management 4) Transparency and oversight of the budget They have to be respected before approval of an operation and during : before each payment BUT the analysis and interpretation are adapted to fragile situations 6
State building contracts were introduced in 2012. The EU has developed SBCs with 21 countries, about a quarter of the total number of countries with whom the EU has budget support operations. (2016: 24 operations with a total budget of 2.2 billion Euros) This instrument seems to work well.
State building contracts and SAIs Fragile situations are characterised a need to strengthen the resilience of the state. The main areas of focus are public financial management, health, education, domestic revenue mobilisation, and macroeconomic stability. The SAI play an important role, notably as key to good public finance management and in the fight against corruption, fraud and mismanagement
A short analysis of risks Overall the risk ranking of 'all countries' and 'fragile countries' is similar. For all countries 'corruption and fraud', 'rule of law' and 'Gov effectiveness' are high on the list. The main risk in countries in fragility is 'vulnerability and exogenous shocks'. In a fragile situation immediate needs are more prominent, this changes the ranking. Therefore (?) 'external audit' seems to be perceived as relatively less risky in in SBC countries. This concerns the relative importance only.
One example of integrated support to SAI 'Performance Indicators' imply that additional budget is released on the achievement of mutually agreed results or indicators. In state building contracts, in each case one or more of the performance indicators concern either external audit or related issues (fight against corruption, internal controls , public accounting). These expected results are typically focal points in the discussions and policy dialogue.
The Commission and GAC of Liberia EU support for the GAC started in January 2007 and the partners are now working on the planning of the third generation project. In Liberia there are self standing projects as well as indirect support through the state building contracts. The support to GAC is assisted by Intosai and AFROSAI and integrated into PFM reforms.
Evaluation recommendations : - Be (ambitious but) realistic - the GAC s own strategic plan should take centre stage - consider the interplay of external factors, most notably the political and legal environment, which define to a large extent the degree of a SAI s independence, autonomy and weight as an anchor of accountability - long-term relationship with a well-developed peer SAI aimed at mentoring and supporting would be helpful
