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Budget support

Greater accountability

by Hanno Spitzer, Marion Fleuth-Leferink
In Tanzania, budget support has proven to be an instrument that, in combination with other aid modalities, boosts effectiveness in a broad sense. Donors have entered into a constructive dialogue with state and civil-society actors. Innovative financing methods have contributed to holding high-ranking officials accountable. [ By Hanno Spitzer and Marion Fleuth-Leferink ]

Tanzania is a very poor country with relatively favourable development conditions. The average annual per capita income is the equivalent of only around 350 dollars. On the other hand, the political situation is stable and democratic.

From 2005 to 2010, the government of Tanzania is implementing a strategy called MKUKUTA to combat poverty and boost growth. The strategy includes crucial institutional reforms such as political devolution and anti-corruption measures. While roughly a third of state activities and expenditures are financed with funding from donors at present, Tanzania’s dependence on foreign aid has fallen considerably as its own revenues have increased.

Twenty-one bilateral and 17 multilateral donors are active in this East African country; as a result, transaction costs are high. In addition, a number of “emerging donors” and international civil-society organisations are on the ground. The large number of projects ties up and overburdens the limited capacities of the Tanzanian state. Therefore, the government called for a switch to budget support and programme-based approaches early on. The first “basket” jointly financed by donors for a specific sector (health) came about in 1999. Germany has been involved in it since 2001.

Today, budget support is an established instrument of development cooperation in Tanzania. It first concerned the 2002/03 budget. In the current financial year (2008/09), 14 donors are contributing a total of $ 750 million to Tanzania’s national budget. This amount makes up 12 % of the budget and a full third of all donor spending. The UK and the World Bank are the main budget-support donors, each contributing around 25 %. Germany’s share is below two per cent.

The Partnership Framework Memorandum specifies the conditions for budget aid. They include sound macroeconomic policy, a focus on preventing poverty, good governance, democracy, the rule of law and political accountability towards Parliament, the media, and voters.

An agreement was also reached on how to assess effectiveness. The criteria are set forth in a matrix called the Performance Assessment Framework (PAF). The PAF allows all issues affecting the various reform sectors to be discussed systematically and coherently with the decision-makers in Tanzania.

The scandals of paradoxical success

In 2007 and 2008, a number of cases of corruption were made public. In the wake of these revelations, critical questions were raised about budget support. Unfortunately, skeptics tend to overlook that such scandals also demonstrate that Parliament is becoming more effective in controlling the government and that the media and civil society are increasingly fulfilling their role of a “fourth estate” in a system of checks and balances.

Indeed, Tanzania set a healthy African example when the government of Prime Minister Edward Lowassa had to step down under pressure from Parliament and political parties because of shady dealings with Richmond, an energy firm.

Another scandal was about some € 78 million embezzled via the country's central bank. This “EPA scandal” was revealed thanks to controls exercised in line with the budget-support agreement (see box below). Donors discontinued their payments for months until the government had fulfilled such conditions as new staff, criminal prosecution and institutional reforms.

The anti-corruption indicators were positive in the PAF last year. As public reporting has confirmed, anti-corruption officials, parliamentary committees and the government’s budget office are operating well. Both the government and the opposition parties are trying to position themselves as being tough on corruption. The state of Tanzania’s public finance and its anti-corruption campaign set standards in Africa. Nonetheless, further improvement is needed. Thanks to budget support, donors have gained useful insights for negotiating future reforms.

High-level dialogue

Contrary to widespread skepticism, budget aid has proven to be an instrument that strengthens domestic accountability in Tanzania. In the first few years, donors and the government conducted negotiations at the Ministry of Finance without public involvement. Nowadays, representatives of Parliament, the private sector, media and civil society take part in these talks. The presence of ministers and top officials enables an unusually open and controversial domestic debate. It is important to stress that such talks are not limited to the yearly week-long joint assessment of budget support, but also relate to reform steps in 23 different sectors.

Obviously, civil society cannot perform parliamentary tasks. In the future, Parliament will have to be strengthened as an institution. As a legislative body, it will also have to have a greater mandate to oversee the budget.

The Tanzanian people are aware of the progress made. In a representative survey, 32 % said that politicians and decision-makers are increasingly being held accountable for their actions, and 35 % said that the government had become more open to criticism.

Furthermore, it was agreed to include indicators of domestic accountability in the PAF. One such indicator concerns the government's duty to inform Parliament.

In the donors’ view, budget support has had another positive effect, making policy dialogue more meaningful and dynamic. The discussion on sectoral and cross-sectoral matters is now of high quality and includes the relevant decision-makers. This development marks tremendous progress over the previous fragmentation due to a multitude of separate projects and programmes.

Progress is particularly evident whenever systemic cross-sector issues are at stake. The annual review last year highlighted improvements in public services, the decentralisation of political powers and the business climate in the rural areas, where more than 70 % of Tanzanians live and work. The reviews also show where and how capacity building has to be stepped up. This instrument has proven to be an indispensable addition to budget aid.

Tanzanian partners explicitly welcome the harmonisation of the 14 donors thanks to the bud ­­get-support programme. After all, the donors im­pose practically no conditions aside from the Partnership Framework Memorandum and the PAF matrix. And they have realised that coordinated action increases their influence on the government of ­Tanzania.

Effects on poverty

At the moment, it is still impossible to prove beyond any doubt that budget aid is making a dent in Tanzanian poverty. The instrument is simply too new, and it is geared to long-term, institutional change. Moreover, poverty is a complex phenomenon. To prove unambiguous causal relations is ridden with considerable methodological difficulties.

Nonetheless, several indicators suggest that budget support is useful for fighting poverty. From 2000 to 2004, mortality rates for children under the age of five fell by 24 % in Tanzania. The infection rate for HIV/AIDS fell from seven per cent to 5.7 % from 2004 to 2008. The share of children going to primary school rose from 88.5 % in 2003 to 97.3 % in 2007.

In comparison, however, the performance of Uganda, Ghana and Vietnam in terms of reducing poverty is even better than Tanzania’s. These countries also received budget support. Clearly, economic policy matters. This topic is sensitive in Tanzania, people are still impressed by Socialist visions of Julius Nyerere, who founded the country. High ambitions in the private sector still seem suspect to many. And despite all decentralisation efforts, people still seem to believe that the central government can handle just about anything.

On the other hand, experience teaches us that budget support makes difficult debates possible. Thanks to the new approach to rural areas’ business climate, the country has already taken several steps in the right direction.