Australia effectively uses general and sector budget support as part of its direct financing in Pacific Small Island Developing States (SIDS). Since 2020, Australia has scaled up its budget support, reflecting its commitment to support locally led development through direct funding to partner governments.
Partner‑led development: Australia’s use of budget support in the Pacific
Abstract
Pacific Small Island Developing States (SIDS) face various challenges in financing their public sectors. These include structural constraints due to their small size, remoteness and lack of economic diversification; vulnerability to external economic and climate shocks; constrained public financial management capacities; existing debt burdens; and challenges accessing concessional finance due, for example, to administrative capacity constraints. Australia’s 2023 International Development Policy (IDP) recognises partnerships with governments as one of the primary approaches to support local leadership, solutions and accountability, and it commits to increasing direct partner government financing.
In 2023, the majority of Australia’s general budget support was directed to Pacific SIDS. During the COVID-19 pandemic, the Australian government rapidly scaled up budget support to help Pacific countries and Timor-Leste to avert fiscal crises, maintain services and protect vulnerable groups. Of the USD 89.2 million in general budget support disbursed to all developing countries in 2023, USD 75.7 million went to eight Pacific SIDS.
Strengthening relationships and promoting dialogue
Prioritising bilateral partnerships. The government has stepped up its commitment to strengthened bilateral partnerships giving the Department of Foreign Affairs and Trade (DFAT) licence to prioritise direct government financing in the Pacific. Budget support is an important tool for a partner-led development programme that can build strong bilateral relationships in a geopolitically complex region.
Leveraging policy dialogue to support long-term change. By integrating mutually agreed policy actions into direct funding arrangements, DFAT’s sector and general budget support is linked to policy reform. DFAT’s direct funding arrangements with partner governments often include policy actions supported by Australian technical assistance, which may be delivered in partnership with multilateral organisations such as the World Bank.
Identifying appropriate and complementary instruments
Combining earmarked and general budget allocations. This ensures interventions leverage and complement each other for development impact. For example, in Fiji, sector budget support that focused on enabling people living with a disability to access government allowances was provided alongside general budget support for disability-focused policy actions.
Conducting rigorous partner country system assessments. Rigorous assessments help to strengthen confidence in the recipient government’s capacity to absorb and manage funds. This includes intervention-level risk and safeguard screening, the regular maintenance of risk registers, and design standards that emphasise the importance of political economy analysis.
Strengthening internal capacity
Enhancing internal capability among DFAT staff to manage budget support programmes. Public financial management and budget analysis training is now available for all DFAT officers. DFAT has also established the Pacific Budget Support Community of Practice to upskill, connect and support staff across embassies and at headquarters to manage and lead effective budget support programmes in the Pacific.
An independent evaluation of Pacific Fiscal Budget Support for 2020-2023 found that DFAT’s budget support had been effective and efficient in helping Pacific countries maintain fiscal stability, manage crises and pursue long-term development.
Supporting policy reform: In Fiji, Australia’s general budget support between 2020 and 2023 was linked with several reforms, including modernising the Financial Management Act and Fiji’s first medium-term debt management strategy.
Strengthening partnerships: In Timor‑Leste, budget support helped strengthen Australia's relationship with the Ministry of Finance and facilitated vital bilateral conversations with senior leaders in a politically challenging context.
Managing crises: In Vanuatu, in 2021, up to 26 000 secondary students, of which 51% were girls, benefited from Australian budget support funding for subsidised school fees, helping maintain enrolments during the COVID-19 pandemic.
Mobilising additional resources: In Fiji, budget support helped secure over AUD 700 million in grants and concessional loans from multilateral development banks and enabled increased government borrowing.
Greater experience in the modality: Australia’s general and sector budget support has increased significantly as a share of its overall official development assistance (ODA) budget, from 2.4% of total ODA in 2018 to 10.5% in 2023. While budget support still makes up a relatively small part of the overall ODA budget, Australia’s use of sector and general budget support in 2023 was triple the Development Assistance Committee (DAC) average of 2.9%.
There is a strong case for greater budget support in the Pacific and for SIDS. Budget support has proven to be an effective instrument the Pacific, including its ability to strengthen resilience in the face of external shocks and the capacity of Pacific Island countries to absorb and manage funds effectively.
Aligning budget support activities with multilateral organisations and other funders enhances impact. For example, in the Federated States of Micronesia (hereafter “Micronesia”), DFAT worked with the Pacific Community (SPC), the European Union and local authorities to deliver a renewable energy project. Australia combined its budget support to Micronesia with funding to SPC for implementation of the project’s scoping plans. The above-mentioned independent evaluation on budget support for 2020-2023 found the approach to be efficient and locally driven, with potential for replication elsewhere in Micronesia.
Effective budget support that strengthens partnerships depends on the capacity of DFAT staff to engage in informed policy dialogue and navigate political economy dynamics. Where staff had strong political skills and contextual understanding, budget support strengthened relationships and reforms, but where this was lacking or attention was diverted the opportunity was missed.
Robust monitoring of fiduciary and other risks at country level is essential. Assigning responsibility at country level for activities to mitigate fiduciary risk supports contextually and politically informed decision-making, including through the maintenance of country-level risk and safeguard registers, and regular political economy analyses.
Annual approval processes can hinder the allocation of multi-year, predictable funding. Australian budget approval processes take place annually, which can reduce its ability to support partner-led government budget planning, longer term reform agendas and stability through multi-year commitments.
Clear evaluation and learning requirements, supported by sufficient resources, enable funders and partners to demonstrate the case for budget support and assess its contribution to intended outcomes. Staff in embassies need to be proactive in monitoring impacts on the ground, with dedicated resources for monitoring and evaluation to support learning on effective budget support.
Equity Economics (2025), Fiji Recovery and Resilience Budget Support 2020-2023, Evaluation, Final Report, https://www.dfat.gov.au/sites/default/files/fiji-recovery-and-resilience-budget-support-2020-23-evaluation-report.pdf.
Equity Economics (2024), Pacific Fiscal Budget Support 2020-2023, Evaluation Report, https://www.dfat.gov.au/sites/default/files/pacific-fiscal-budget-support-evaluation-report-final.pdf.
AFI (2022), Australia's COVID-19 Response Package for the Pacific and Timor‑Leste, Independent Review 2020-2022, https://www.dfat.gov.au/sites/default/files/covid-19-economic-response-package-pacific-island-countries.pdf.
OECD (forthcoming), OECD Development Assistance Peer Reviews: Australia 2025, OECD Publishing, Paris.
OECD (2025), “Small Island Developing States”, https://www.oecd.org/en/topics/sub-issues/small-islands-developing-states.html (accessed on 20 November 2025).
OECD (2025), “Co-operation with small island developing states”, TIPs Fundamentals, Development Co-operation TIPs ∙ Tools Insights Practices, https://www.oecd.org/en/publications/development-co-operation-tips-tools-insights-practices_be69e0cf-en/co-operation-with-small-island-developing-states_72f42451-en.html.
OECD (2024), “Country Ownership Over National Development Processes”, TIPs Fundamentals, Development Co-operation TIPs ∙ Tools Insights Practices, https://www.oecd.org/content/dam/oecd/en/publications/reports/2021/03/development-co-operation-tips-tools-insights-practices_d307b396/country-ownership-over-national-development-processes_72dbbb6d/1a0df804-en.pdf.
OECD (2024), “Using budget support to respond rapidly to COVID-19 in Pacific small island developing states (SIDS)”, TIPs In Practice, Development Co-operation TIPs ∙ Tools Insights Practices, https://www.oecd.org/en/publications/development-co-operation-tips-tools-insights-practices_be69e0cf-en/using-budget-support-to-respond-rapidly-to-covid-19-in-pacific-small-island-developing-states-sids_7d12eadc-en.html.
To learn more about Australia’s development co-operation, see:
OECD, Australia, Development Co-operation Profiles, OECD Publishing, Paris, https://www.oecd.org/en/publications/development-co-operation-profiles_04b376d7-en/australia_b4d74d53-en.html.
More In Practice examples from Australia are available on Development Co-operation TIPs • Tools Insights Practices.
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