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Risk Management Framework for Budget Support

Prepared for the OCT TAO Training Workshop 9-10 December 2013

European Commission - DG DEVCO Unit 03 – Budget Support and Public Financial Management

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1. Why do we need a RMF?

• Special Report on BS Management (ECA Dec 2010) Need to assess fiduciary and development risks at the outset

and during implementation.

Budget Support Communication (10/2011)Specific budget support risk profile covering five risk categories

RMF tool in programming, design, and implementation

Link with eligibility criteria and FV? Anticipating potential eligibility problems

• 4th High Level Meeting on Aid Effectiveness in Busan

Risk Management Tools are widely used by donors (incl. MS)

Management rather than avoidance of risks

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2. What is risk management? (1)

Risk is any event or issue that could occur and adversely impact the achievement of the Commission’s political, strategic and operational objectives.

Risk management is a continuous, proactive and systematic process of assessing, mitigating, and monitoring risks.

Risk Response

& Mitigation

Monitoring & Reporting

Identification &

Assessment

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2. What is risk management? (2)

Risk assessment is an input into the BS programme cycle. It serves as an early warning system for important new risks. For OCTs it will also be used to assess eligibility.

3. How to assess risks? (1)

Focus is on country systems and risks that may impede achieving the general objectives of budget support.

One assessment per country/OCT

Based on existing assessments of eligibility criteria etc.

• Risk Questionnaire: Risk identification

• Risk register: Main risk management tool (risk identification, risk mitigating, risk monitoring)

• Country Risk Profile: Summary for decision-makers

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RISK MANAGEMENT FRAMEWORK

Political Risks Macroeconomic

Risks

Developmental

Risks

PFM Corruption /

Fraud

Fu

nd

am

enta

l v

alu

es

Human

Rights

Macroeconomic

Policies and

Financial Sector

Public Policy Comprehensiveness

of the Budget

Corruption &

Fraud

Democracy Debt Sustainability Government

Effectiveness

Controls in Revenue

Collection & Budget

Execution

Rule of Law Vulnerability and

Exogenous Shocks

Procurement

Insecurity and

Conflict

External Audit

Not for OCTs

3. How to assess risks? (2)

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3. How to assess risks? (3)

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3. How to assess risks? (4)

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3. How to assess risks? (5)

Country Risk Profile

Highlighting key elements of the

assessment based on the risk register

• Major risks and benefits

• Key mitigating measures

• Overall recommendation

• Average ratings on country and category level

• Risk levels and risk trends

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4. How to address risks? (1)

Mitigation …

Should be the most common response to risks

Is a joint effort of partner country & donors

Imply elaboration and implementation of clear and comprehensive action plan to address key risks (substantial / high risks)

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4. How to address risks? (2)

Mitigating Measures

Further Analyses and Surveys: Public Expenditure Tracking Surveys, Public Expenditure Reviews, etc.

Capacity Development

Enhancing transparency, accountability and participation in the budget process (demand-side)

Conditions for the disbursement of variable tranches

Requirements and safeguards as specific conditions

Adapt design features of the contract: duration, tranches, targeted aid, etc.

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5. How to monitor risks? (1)

Check that identified risks are adequately managed

Assess the implementation progress of mitigating measures

Identify any new risks or changes in circumstances

Regular yearly up-date of risk questionnaire, risk register, and country risk profile

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Corruption

and FraudC

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and

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iven

ess

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of

the

Bu

dge

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Co

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ols

in R

even

ue

Co

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an

d B

ud

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Pro

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men

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Exte

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Au

dit

Co

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an

d F

rau

d

Anguilla

Falkan Islands

Greenland

Montserrat

Nouvelle Calédonie

Pitcairn

Saint Helena, Ascension, Tristan da Cunha

St Pierre et Miguelon

Turks and Caicos

Aruba

Mayotte

Macroeconomic Risk Developmental Risk PFM Risk

Ave

rage

Ris

k

Thank you.

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