NN39, October 2007
Best Practice in Education and Training: Hype or Hope?
The End Of Poverty Or The End Of Budget Support?
By Aiichiro Yamamoto, Special Assistant to Director-General of Africa Department, JICA
Time is drawing near when donors kiss off years of romance with budget support. Budget support is a relatively new modality of aid whereby donors channel funds directly to the partner government budget system. This monetary approach of aid has been strongly advocated as an ideal form of aid by some European donors such as the U.K. who believe that the conventional project type assistance failed to bring about overall development effect in the recipient countries, particularly in Africa.However, while the efficacy of budget support is unknown, it is fraught with many risks and dangers as noted below.
No exit policy
Budget support does not present a clear a priori exit policy. Because budget support is intended to piggyback a part of the budget of poorly financed government, it tends to be used to pay for administrative costs such as salaries of the public servants and office expenditures. Seventy-eight per cent of the health budget of Ghana which is heavily subsidized by the sector wide budget support is spent for the salaries of health workers. Such routine expenditures tend to be perpetuated and it will become a long-tem burden on the donor governments that supply funds.
In the case of project based aid, donors and recipient government agree on the fixed-term project framework, usually, for four-to-five years. Thus donors can have a clear vision on the path for achieving development objectives as well as the timeframe for their exit from the projects, which makes them easy to predict and control their overall aid budgets over time.
Unlike project assistance whose aim is clearly to support development of partner countries, such as capacity development, research and training, budget support poses a risk that it may not be inked directly to the development effort of the partner countries. This development risk is far more crucial than the widely recognised fiduciary risk to development partners whose common goal is to show concrete results towards achievement of the MDG?s.
Dependency rather than self reliance
Budget support tends to develop a sense of dependency rather than self- reliance among those who receive it. Any government will find it cosy if a substantial amount of their budget is granted by the foreign donors indefinitely. In Africa where the level of aid dependency is already high, the proportion of budget support within their national budget is rising in a number of countries such as Uganda (55%), Tanzania (16%) and Ethiopia (15%). In these countries, budget support is provided within the expenditure framework of the PRSP. But it does not impose any actions or efforts on the part of the recipient in terms of raising revenues and thereby graduating from it. Thus budget support and aid dependency may be perpetuated regardless of the pressing needs to link national budget with the achievement of the MDG?s.
Unfriendliness to decentralisation
Budget support is not a friendly tool to support the decentralisation process which is the current move in many developing countries. Budget support, particularly, general budget support is intended to strengthen the state in its core functions and usually deals with the central state as a partner. However, there are other relevant stakeholders beyond the ministry of finance and other central ministries if the MDGs are to be achieved. They are regional and local governments, the private sector and civil society who are the key actors in the decentralisation process. It is widely recognised that the budget support modality does not reach out to the intended beneficiaries on the local level such as community health posts and rural schools. In the case of project assistance, it is relatively easy to target any beneficiaries at any level or localities.
Conditionality trap
Apart from the stated objective of budget support, which is to enhance the state ownership of development policies and to build the state capacity to manage public expenditures, there is an underlying objective of promoting policy dialogue between the state government and development partners. Unlike the much criticised conditionalities attached to the structural adjustment lending by the World Bank and the International Monetary Fund, which were largely ex-ante macroeconomic policy conditionalities, budget support donors usually impose process conditionalities such as good governance and democracy. This is made possible because budget support is easy to disburse and easy to stop. Thus donors can flexibly and timely respond to what donors consider as a violation of terms and conditions for budget support, for example, in times of military action, human rights abuse and election rigging.
In Ethiopia, budget support donors suddenly stopped funding when they learned Ethiopian police fired at the demonstrators who protested against the government election rigging. This incident illustrated the self-contradiction of budget support. While budget support is touted as building national ownership and ensuring long-term aid predictability, it enables donors to pressure national governments and to disrupt their budget expenditure flows.
Limited number of clients
Budget support made its debut early in 2000s. In spite of the efforts of some enthusiastic donors, the number of countries eligible to receive budget support has not increased so much in the past. The number of budget support clients of DFID is still hovering around twenty countries. It seems to be a difficult task for DFID to increase the share of budget support in their ODA more than 20 percent. Due to its intrinsic exclusive conditions, such as governance and fiscal management, budget support is far from being a universal tool for development aid.
Evaluation pitfall
Every aid intervention must be evaluated against its impact on development. Budget support tends to blur its impact on development for the following three reasons. First, because budget support, and general budget support in particular, are given to help achieve the general purpose of the public expenditures, it is difficult to pinpoint the specific development purpose of a certain tranche of fund release by the donors. Second, because budget support is attached with various non- developmental cconditionalities such as good governance, participatory processes or democracy, evaluators may obscure the pure developmental goal or poverty reduction goal of the budget support by positively referring to the impact on the conditionalities, which are the ?attachment? not the substantial part of the support. Thirdly, as budget support is usually provided on the basis of multi donor agreement, donors are collectively held responsible for its outcome. No donor is attributed for its success or failure. Unlike project assistance where a specific donor behaviour is duly evaluated, budget support tends to dilute the responsibility for managing and evaluating its outcome on the part of participating donors.
Having examined all the above aspects of budget support, it must be said that the current project based assistance proves to be a much superior tool for development aid than budget support, provided that donors make constant efforts to improve the former?s efficacy on development. We all agreed to work hard to achieve MDGs but we haven?t agreed that budget support is a panacea for MDGs.
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