Room for improvement
Budget support is meant to serve comprehensive development: the historical centre of Stone Town, Tanzania
Budget support is when donors subsidise developing countries’ national budgets. Typically, donors draft joint assistance strategies (JAS) to make the most of this instrument. The ECDPM, which is based in Maastricht, Netherlands, considers some of its typical findings. They include that the expectations of all parties involved tend to be too high and that funds are sometimes mismanaged, either by the recipient government or donor agencies.
The report cites three main challenges:
– high transaction costs,
– limited national ownership and
– action by various agencies that does not meet local needs and conditions.
Mozambique used to be an ally of the Soviet Union. In the 1990s, it became a darling of western donors. Today, half of its national budget is funded by donor contributions, according to the ECDPM. While donors do not have a joint assistance strategy for Mozambique, a memorandum of understanding (MoU) was signed in 2004. It regulates donors’ contributions.
One of MoU’s main goals was support for the Poverty Reduction Strategy of Mozambique (PARPA). PARPA was implemented in two phases, the second of which recently ended after an extension. The ECDPM states that, for 2008 / 09, 50 % of indicators were satisfactory or above. While acknowledging improvements in the past four years, it mentions remaining problems. They include:
– a lack of trust between donors and the government,
– fragile peace,
– poor enforcement of human rights and civil liberties,
– inadequate prioritisation of poverty issues and
– a failure to pursue sound economic policies.
In Tanzania, another extremely aid-dependent country, there were efforts to give the people more control over aid, the ECPDM reports. Tanzania requires donors to discuss all plans with the government in order to define priority areas for intervention. This approach has resulted in making all parties cooperate closer as well as in a reduction in the number of projects.
Aid accounts for approximately 40 % of Tanzania’s national budget. Recently, the share has been falling in spite of rising official development assistance (ODA). In spite of rising domestic government revenue, the country still depends on aid.
Government behaviour is a problem, according to the ECPDM authors. Officials are said to try to micromanage too many aspects, frustrating donors and causing delays. The report also mentions problems with government representatives negotiating plans with donors but lacking the authority to implement them. For reasons like this, some donors have begun to bypass dialogue, causing further problems, as the ECDPM states. Shortcomings included poor financial management, high transaction costs and corruption.
In Zambia, there has been progress, the authors write. The aid share in the national budget dropped from 43 % in 2000 to under 30 % in 2007. Nonetheless, there are still some challenges, particularly in donor-recipient relations. The ECDPM mentions high fees, little coordination and poor record keeping, most of which was due to the government being overburdened. The government also had faults, however. The report lists poor coordination, inadequate financial management and even an unwillingness to cooperate with donors. In reaction, donors tried to bypass Zambian authorities, which, according to the ECDPM, did not help either.
To improve matters, the Zambian government has spelled out some goals which should lead to more responsibility and sovereignty for the government. The ECDPM writes that the joint assistance strategy was effective in mitigating some problems.
In their conclusion, the ECDPM authors argue that optimism about budget support is fading. In their view, it is important to study the problems in order to improve the application of this instrument. They do not propose abandoning it altogether.