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No guarantee of ownership
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02/2006
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[ Budget support ]
No guarantee of ownership
Budget support – rather than classic development projects – serves two objectives. First, it is meant to decrease transaction costs that arise when a number of donors implement various measures. Second, the idea is to increase the target country’s ownership of the programmes financed by donors.
That’s the theory. In practice, however, two problems arise. First, there is still a lack of harmonisation as donors tend to tie budget aid to all kinds of goals and conditions. Second, they want to make sure that the money is used as agreed. Doing so requires monitoring, but should not restrict the target country’s ownership too much.
Normally, donors such as the European Union, the World Bank or bilateral institutions like KfW Entwicklungsbank make aid conditional on performance criteria they define themselves. In some countries that receive budget aid, however, local governments and donors are trying to reduce administrative burdens by using accounting procedures that apply to all parties involved. For Mozambique, Ghana and Tanzania, so-called Performance Assessment Frameworks (PAF) have been in use for some time. PAFs are meant to standardise procedures on the one hand, and to make the flow of funds more reliable on the other.
In a recent study for the Swiss government, development consultant Richard Gerster and his team consider PAFs an important step in the right direction. However, the document also states that the examples of the three African countries show several flaws of uncoordinated budget aid. Not only do PAFs not remedy some of these problems, they actually perpetuate them, according to the study.
The study bemoans that PAFs are so complex and detailed that only a small well-informed circle can understand them at all. All three PAFs studied were considered overloaded with accounting criteria and performance indicators. Therefore, only specialists from the ministries of finance or planning are said to be able to understand under which conditions their countries will receive budget aid.
This confusion, according to the study, reduces the incentives provided by variable tranches, the values of which depend on the target country’s performance, because it often remains unclear which criteria have to be met in order for the tranche volume to rise. According to the study, the PAFs are over-complex because all the donors wish to apply their own criteria, which, in turn, stem from diverse interestes and objectives of the donors.
Overloaded, incomprehensible PAFs also go against the goal of ownership. The Gerster team found that the PAFs for countries that enjoy a high level of donor trust – Mozambique, for example – stand out due to their weak language and sometimes vague criteria. Giving the respective government more leeway, however, does not mean that their sense of responsibility as owners becomes any stronger than in countries with less scope of action, warns the study.
In Ghana, on the other hand, the government presented a PAF draft for 2006 which the donors rejected. Together, all parties involved then drafted a stricter and clearer paper. This process strongly promoted the feeling of ownership in Ghana, as the report states. In the authors’ view, the donors’ legitimate need for monitoring does not contradict the principle of ownership, “so long as there is a dialogue over the choice of reforms and the motivations of the external stakeholder are justifiable and transparent.”
The tension between the conditionality of aid on the one hand and the continuity of funding on the other could also be eased. The study recommends a disbursement method for budget aid, which some donors already use. First, a fixed tranche is guaranteed, the payment of which is tied to meeting basic conditions (such as certain macro-economic measures). Second, a variable tranche is allocated according to reform performance.
Furthermore, it is important to come up with a schedule for performance reviews, in order to get a transparent timeframe for budget aid disbursement. The most sophisticated review procedures are worthless if the government concerned cannot incorporate the flow of money, which depends on results, in its budget because it does not know whether donors will pay on time. (ell)
On the internet:
http://www.gersterconsulting.ch/
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