Notes
General Budget Support (GBS) is an increasingly used and
lauded development approach. It is used by most bilateral
and multilateral donors. USAID is in the process of evaluating
GBS, as it is a relatively new and interesting approach,
but it comes with high-risks. USAID uses project aid which
allows it to control and make sure development succeeds,
but projects may not building a sustainable framework. USAID
has not yet implemented any GBS programs and, according
to Joe Lieberson, has seemed somewhat opposed to the idea.
The purpose of this fifth seminar of USAID’s Summer
Seminar Series was to discuss the results of three evaluation
case studies, including two different evaluation approaches
and three countries (Mozambique, Malawi, and Tanzania),
in order to explore when general budget support is the most
appropriate way to support development. Joe Lieberson, Senior
Economist in the PPC Evaluation Office introduced the panelists
and the topic and presented his findings in Mozambique.
Diane Ray Deputy Research Manager/Senior Research Analyst,
Development Information Services Project, discussed the
lessons learned from GBS in Malawi. Brian Frantz, Division
of Policy, Outreach, Strategy and Evaluation (POSE) Office
of Development Planning Africa Bureau, presented his findings
from GBS in Tanzania. Mozambique and Tanzania have had some
success with GBS; however, Malawi has not.
Lieberson mentioned two ways of assessing GBS. First, for
the Mozambique and Malawi evaluation studies researchers
asked, what minimum country conditions are necessary before
donors can consider GBS? Second, for the Tanzania study,
has GBS led to the successes claimed for it and are country
capabilities improving?
General Budget Support
Donors usually fund
development projects and manage project implementation,
using NGOs or contractors. In contrast, under GBS, donors
provide the receiving government with aid funds to support
their budget. Donor funds are not earmarked for specific
purposes. Therefore, the government is able to spend GBS
funds on its own development programs, activating and nurturing
its allocation, procurement, and accounting systems. The
underlying philosophy of GBS is to encourage government
ownership of the development process by promoting the development
and sustainability of state institutions, including government
planning, management and the effectiveness of the overall
budget process.
Arguments in Favor of GBS
GBS is thought
to be more sustainable than project aid because with project
aid, once the project ends, benefits are often not sustained.
It is also argued that, by moving from donor projects to
GBS, developing country governments will be more successful
at reducing poverty because they can better identify the
most critical problems.
GBS is less costly for donors since they do not have to
manage projects and is less costly for the LDC, since it
does not have to deal with 20 or so different donors, each
with its own reporting and financial requirements. (This
is an assumption, or a hope, of GBS but it has not been
proven because it is too early to tell.) It is important
to determine what country conditions are needed for GBS
to be successful.
Mozambique
Lieberson outlined the issues
and lessons learned from Mozambique. On the first—planning—donors
gave Mozambique high marks given its well-defined poverty
reduction strategy. Second, Lieberson emphasized that the
government must own the development process, not the donor.
Mozambique was an example of success with development ownership
as the government is a committed and active leader of the
policy and budget process.
Third, while Mozambique’s planning capabilities are
good, its technical, financial, and management capabilities
are weak. Consequently, donors are only prepared to allocate
20 to 30 percent of their funds in Mozambique in the form
of GBS. The rest is still in project or sector assistance.
The fourth question dealt with implementation of the development
plan. Mozambique has a well-designed development plan and
medium-term expenditure framework; however, Mozambique’s
annual budgets are not directly related to policy planning
objectives.
The fifth question related to accountability. A country
needs credibility with donors and its own citizens. Accounting
records and audits are weak to non-existent in Mozambique,
and financial discipline and sound budget execution are
lacking. Finally, to assure that GBS is the most effective
way to reduce poverty, the country must measure development
performance. In this case, Mozambique was far ahead of other
countries; they had a Performance Assessment Framework.
Lessons Learned
1) Mozambique’s excellent
planning demonstrated that a government must have a well-designed,
analytically sound plan and an appropriate policy framework
to promote equitable growth. It also needs to identify which
services the government can realistically provide and those
that can be delivered more effectively by the private sector
or NGOs.
2) GBS in Mozambique provides some important lessons with
respect to government ownership. For example, in some LDCs,
the government is almost too willing to allow donors in
to its country and does not care if it has a say in the
program. Under this scenario, the donor is in charge of
development, not the country. According to Lieberson, this
is not a winning development model.
3) With respect to technical, financial, and management
capabilities there were serious problems in Mozambique.
4) Because the donor is providing cash, a government’s
financial and accounting systems must ensure that funds
are spent effectively. Donors need to undertake fiduciary
risk assessments to identify problems.
5) The donor not only needs to ensure that the funds are
spent effectively; they must be able to establish the link
between GBS and poverty reduction to ensure that the money
is achieving results.
Corruption pervades every aspect of society in Mozambique.
For example, $200 to $400 million disappeared and ruined
the financial system. It is difficult to proved GBS when
a government lacks the will to control corruption.
GBS may not be the best way to deal with microeconomic
and private sector problems in a country that supports state-ownership
and protectionism, like Mozambique.
Proponents of GBS complain that project funds are distributed
sporadically, while GBS gives countries a greater ability
to plan and sustain development efforts.
Malawi
In March of 2004, Diane Ray, Joe
Lieberson and Brian Frantz conducted a field evaluation
in Malawi in which they spoke with government officials,
bi-lateral and multi-lateral donors, civil society organizations,
and NGOs. Her presentation had three parts: 1) macroeconomic
and sector reforms; 2) budget discipline and sound financial
systems 3) government management and ownership of the development
process.
Ray painted a picture of the current situation in Malawi.
There are currently four donors in Malawi committed to giving
GBS: The European Commission, Norway, Sweden, and the United
Kingdom. However, over the past two years there have been
almost no GBS disbursements.
Ray mentioned several concerns regarding Malawi’s
macroeconomic and sector policy reforms. First, Malawi has
a sound poverty reduction plan but is making little progress
due to a lack of political will. The second problem is that
monetary and fiscal policies are out of control. Staying
on track with the performance targets of the IMF Poverty
Reduction and Growth Facility is a condition for donors
to allocate GBS. When donors suspend their aid Malawi borrows
more money. This keeps Malawi in a vicious cycle of domestic
debt accumulation and further deviation from IMF standards.
Third, Malawi’s budget does not mirror the goals set
out in their poverty reduction plan.
On the other side, concerning Malawi’s budget and
financial systems, expenditures are not matching the budget.
However, Malawi is trying to implement an Integrated Financial
Management System. Ray pointed out that reforms are needed
in financial service, delivery and accountability. In addition,
efforts are needed to encourage parliament, civil society,
and the media to play a stronger oversight role in the Government.
NGOs are working to improve this problem.
With respect to Malawi’s government management and
ownership of the development process, the high-level officials
are well trained, however, hard to retain. In addition to
the retention problem, is the lack of skilled low- to mid-level
employees in government. The prevalence of HIV/AIDS compounds
the former two issues. Pervasive corruption is another obstacle
to donor justification of GBS. In Malawi, corruption is
mainly found at the highest levels of government but is
rapidly growing, what some call, “the democratization
of corruption” as it spreads to more and more people.
That’s not very good trend.
Ray concluded that where there are skilled personnel and
low levels of corruption, ownership of the development process
should be encouraged.
Tanzania
Brian Frantz prepared a paper
for the Tanzanian Mission as part of their new Country Strategic
Plan. This evaluation was part of a different project than
Ray and Lieberson's.
Frantz drew attention to the European-led philosophy underlying
GBS, which claims that GBS provides the necessary support
for a country to get to 'minimum-level standards' and improves
accountability. This is in contrast to the American-led
view, which believes countries should have 'minimum-level
standards' before they can benefit from GBS.
This former approach assumes that it is either not possible
or not important to specify minimum standards of capacity
and accountability. Instead, it sees “commitment”
to development progress as the key variable for making a
judgment about using GBS rather than, e.g., whether a certain
type of financial system is in place or how many years of
education civil servants have. According to the European-led
philosophy, the development community should be seeking
higher rather than minimum standards.
Tanzania has become a model of donor-government partnership.
As relationships have improved, the amount of GBS has risen.
A strong policy dialogue between donors and the government
has accompanied the increased use of GBS, and there is a
partnership framework memorandum with the following objectives:
1. Minimize transaction costs
2. Harmonize performance benchmarks and dialogue between
the parties
3. Lead funding commitments by the donors to achieve minimum
set targets.
4. Increase the predictability of donor flows to the government.
The Performance Assessment Framework (PAF) includes a list
of policy actions and outcome indicators that have become
a standardized framework. Donors use the outcome indicators
in the framework to provide some level of specificity and
predictability for the Government.
Frantz mentioned a series of reforms that are currently
being undertaken in Tanzania, including local government
reform programs and the public financial management reform
program, which includes an Integrated Financial Management
System (as in Malawi). The Ministry of Finance is strained
because it handles Government relations with donors and
has de facto responsibility for the aforementioned reforms.
GBS reinforces a certain discipline in the financial process
because it does not allow line ministries to obtain resources
outside of the government budget process.
With respect to the allocation of GBS to PRS priority sectors,
expenditures have increased due to an overall increase in
GBS. As far as sectoral allocations being appropriately
divided between central and local levels, there are mixed
impressions in Tanzania. Most people thought that too much
was spent in the capital, but recent studies have shown
that Tanzania is doing a reasonable job of decentralizing
its finances.
There is a pro-urban, pro-wealthy bias regarding the equal
division of resources among districts; however, the Government
is changing the allocation formula. Public Expenditure Tracking
Surveys have shown that less than 50 percent of the funds
allocated to the local levels from the Ministry of Finance
are actually getting there. However, recently the Ministry
of Finance has decreed that the government must publish
regularly fund amounts and allocations. Concerning the proper
allocation of funds, funds are generally being spent on
things that promote the capacity of service delivery but
not yet on service delivery itself.
Corruption is a big problem in Tanzania. The existence
of capacity constraints makes corruption easier but, according
to the European view, GBS helps on the capacity front by
better utilizing the Government’s existing capacity.
Proponents of unconditional GBS argue that using the whole
financial management system allows the donor to see where
the leakages are, while the Policy Dialogue allows them
to the space to deal with the government on the leakage
problems. (Frantz did not find it obvious that capacity
constraints and corruption are better addressed through
project support.
Frantz worried that GBS would not likely strengthen democracy
due to patronage networks. The predictability of GBS disbursements
is pretty good because donors have been able to respond
to lagging performance with reductions in GBS in the following
fiscal year. Finally, transaction costs of aid do not seem
to have fallen with GBS.
Frantz ended his discussion two important conclusions.
First, positive results from GBS are not automatic, and
second, non-GBS complementary investments will be needed
for GBS to deliver on the impact side. For the full power-point
presentation, or copies of the evaluation results please
visit www.usaid.gov; enter key word: Summer Seminars.
Question and Answer Session
We do have some budget support experience within
USAID, particularly under economic support funds for strategic
states such as Pakistan. Do you think the questions here
are extrapolatable to the MCA countries and should countries
with the same kinds of problems take a look at this sample
set?
If the issue is anti-terrorism or U.S. political
interests than Economic Support Funds make sense. However,
the prime interest in such cases is not development. It
is hard to press for development policy reforms in such
a situation. We were interested in development and therefore
we examined development cases in Africa, where GBS was used
by the European countries strictly for development reasons.
MCA was interested in providing cash transfers to support
development in poor countries. They were interested in the
experience with GBS.
In the case of Tanzania, the Mission requested the evaluation
to inform their strategy. GBS is fast becoming a trend in
Africa due to capacity constraints and other obstacles.
GBS, according to the Europeans, helps improve standards.
GBS is thought to be more effective in dealing with these
problems because budget support uses the whole financial
management system. There is less red tape, for example,
the Government having to report on individual donor projects.
How do regard the utility of GBS in post-conflict
countries?
It doesn’t seem to fit very well
at all. In a post-conflict situation donors are tying to
help a country recover from a severe economic disaster.
The objective is to get them back up to where they were
before. It’s not a development situation. Once they
have recovered then development can proceed. At that point
GBS might make sense. Not before.
Regarding conditionality—how are your parameters
not conditions for receiving GBS?
Under GBS, when
a government is following policies that make sense, and
it’s on the right track, then there is no need for
donor enforced conditionality. GBS donors provide money
to implement the policies.
Regarding “Education for All”—is
the emphasis on GBS affecting the climate of interventions?
How is this affecting the efficacy of the resources?
Donors
focus on public expenditure, rather than growth policy questions
(be it micro or macro). Most of the time, the policy dialogue
includes the Ministry of Finance and donor economists, an
ideal group to address growth policy issues. Yes, this is
a problem, but the “right” group is meeting.
A performance assessment framework, for example, could be
structured to better address these issues.
You haven’t touched upon the results the
government is claiming, i.e. benefits to students. Have
the results improved over the previous system?
In
Tanzania, net enrollment rates increased. But, we don’t
know for sure whether it’s GBS. We ask, “Would
the same amount of funds in the form of projects give the
same results that GBS would?”
There are few results that can directly link GBS to improvements
in development. It may be because GBS is new and it will
be several years before it will be possible to see measurable
results.
A key theme that you mentioned was capacity or
capacity building. Which was the causality? Is there any
evidence that GBS solves the resource constraint by improving
sustainability and retention over time versus providing
technical assistance?
There is much concern over
causality; it varies by donor. For example, the Norwegians
believed that giving GBS would help a country get on track
with the IMF. However, donors think that being on track
with the IMF should be a condition of receiving GBS. It
raises an important question: Do you give a country the
money with conditions or without conditions? In terms of
capacity building, there is a need for civil service reform—increased
salaries; firing people who are not good and retaining those
who are – but do you make this a condition of receiving
GBS?
Salaries in Mozambique aren’t skyrocketing. There
are civil service problems with phantom employees and pooremployee
performance.
Regarding project assistance and conditionality—if
we give GBS, how can we be sure that things, like healthcare
will be adequately provided for? For example, we gave money
to health basket hoping that some would be used for contraceptives—it
was spent on something else. Later, we found the government
begging for contraceptives.
It’s the basket
principle—a donor provides flexible assistance and
allows donors to have a role in policy making. But I didn’t
mean to suggest that donors either provide project or budget
support. I tried to argue that a mix is needed.
How do we take a better look at the counterfactual?
In Africa, institutional capacity isn’t that great—we
stumble on sustainability issue. We need to look at whole
picture. Is there any plan to discuss those issues?
There
are other countries coming up for study—Nicaragua
and East Timor. Most donors are doing a mix of support.
I think those papers will cover your point better. Such
as the up-coming East Timor and Nicaragua papers. In addition
the Malawi evaluation paper covers other forms of non-project
assistance.
The Europeans hypothesize that GBS will result in the
capacity changes that we would like to see. It does provide
donors with a larger voice in policy-making. My impression
is that AID has sometimes been cut out of a lot of the policy
dialogue because we do not contribute to baskets. The question
then is whether the policy dialogue is useful?
We need to get the question right. How do we find out
if these methods are working? Policies and institutions
matter most.
It’s difficult for NGOs to find funding because
governments are giving it in the form of GBS. Do you feel
like the macro outcomes from GBS are good, and enough to
justify funds from Congress?
The GBS donors are
supporting government programs and that often cuts NGOs
out of the development business. In Mozambique we talked
to NGOs that were working with the government. The government
would hire them to do the tasks that the government was
unable to perform. But you have pointed out a real problem.
GBS favors the government over NGOs. In many cases the NGOs
might be better able to provide services---but they will
lose out to the government.
Isn’t the U.S. government providing much
assistance through the NGO community? In fragile states,
the U.S. puts lots of money into Pakistan, providing money
through ministries to promote their overall development.
How do you see that?
The question is focus. The
motivation on the U.S. side is different in a country like
Pakistan. While we hope our assistance will reduce poverty
and improve development, it is often hard to push those
objectives if the U.S. interest is anti-terroism. GBS, doesn’t
seem to fit well in such a situation where U.S. defense
and political interests would outweigh USAID interests in,
for example, increasing enrollment of girls in public schools.
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