• Aid allocation

Aid allocation

This policy brief presents a case study of general budget support (GBS) in Ghana. It is argued that, by providing aid as budget support, donors have taken risks and made important contributions to poverty alleviation and governance. In particular, the paper explores the impacts of the Multi-Donor Budget Support (MDBS) Programme, in support of the newly-adopted Ghana Poverty Reduction Strategy (GPRS).

In assessing the immediate effects of MDBS, the study finds that:

• budget support has been of limited importance in relation to total aid and the Government’s own budget and its relative importance has diminished over time. This has limited the achievements of the MDBS
• MDBS has ensured aid predictability within a range of ±5% of planned disbursements. It has also been associated with reduced transactions costs, although this is hard to demonstrate conclusively
• MDBS has helped enhance policy dialogue and conditionality, improving Government policy ownership and prioritisation, target setting and monitoring
• the contribution of MDBS to aid harmonisation and alignment is modest.

The brief argues that while MDBS has kept reform on the agenda and as has had a generally pro-poor influence, it has not been able to minimise the risks by supporting more effective public finance management systems, nor has it managed to maximise the payoff in terms of poverty-reduction.

The brief recommends that action be taken along the following lines:

• the MDBS programme needs to be re-conceived primarily as a method of budget financing, not as a tool for policy leverage
• annual disbursements should not be conditional, but instead should be dependent upon the maintenance of ‘due processes’ in public spending
• reforms should be promoted by open dialogue with both domestic and external stakeholders
• the Performance Assessment Framework needs to be re-designed as a mechanism for enhancing internal, rather than external, accountability, by making reform targets and results public, and by giving wider access to policy debates
• the original objective of minimising transaction costs needs to be brought back to centre-stage.
  

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