Reducing Mozambique’s reliance on donor aid

Civil war in Mozambique forced more than a quarter of the country’s population abroad as refugees. When the war ended in 1992, Mozambique’s economy and society were destroyed and the country became largely dependent on external aid. What will help the Mozambique government reduce its aid dependence?

Mozambique is one of the poorest countries in the world, with institutions that lack the capacity to meet its development needs. A report from the Oxford Policy Management Group, UK, focuses on the country’s budget process and its reliance on donor support. It argues that while external aid helped rebuild Mozambique, it has also reduced the government’s ability to manage the country’s budget and weakened the national ownership of policymaking.

The majority of people still work in agriculture, even though this accounts for only a fifth of the total Gross Domestic Product (GDP). The return of more than four million refugees after the war and the process of liberalisation made it possible to start rebuilding the economy. High levels of aid have resulted in relatively high growth rates and improvements in public services.

Dependence on aid for about 50 percent of the public expenditure has meant that expenditure decisions essentially involve the government executive and foreign donors. Mozambique has had a weak civil society and a weak parliament and these do not provide effective checks on the executive. The government is primarily accountable to donors rather than to Mozambican society.

Findings include:

• Although a growing portion of aid is provided as general budget support, more than half of aid is provided directly to line ministries as sector funds or under traditional project modalities.
• Much of this aid is also off-budget.
• Aid decisions are highly fragmented, making it difficult for the government to plan public expenditure to meet national policy priorities.
• This situation means that ministers prefer to negotiate additional resources directly with donors, and incentives for the government to improve overall resource allocation, for example through the Medium Term Expenditure Framework, are weak.

This will only change if there is a more decisive shift from project aid to budget support and most aid is brought on-budget, which is limited by some donors’ unwillingness to give up direct control over the use of their aid resources.

The authors argue that, even if these changes in aid occurred, there is no guarantee that the government would manage its resources effectively due to:

• low capacity in human resources, systems and technical tools for public financial management
• the likelihood that budget decisions would be shaped mainly by elite interests in the absence of effective participation in political processes by poor people.

These structural constraints are likely to change only gradually as the country reaches a higher level of economic and social development.

Source(s):
‘Political Economy of the Budget in Mozambique’, Report from the Oxford Policy Management, by Tony Hodges and Roberto Tibana, December 2005 (PDF) Full document.
‘A Economia Política do Orçamento em Moçambique’, Lisbon: Principia, by Tony Hodges and Roberto Tibana, December 2005

Funded by: UK Department for International Development (DFID)

id21 Research Highlight: 8 November 2006

Further Information:
Anthony Hodges
UNICEF
12 Sanlitun Lu
Beijing 100600
China

Tel: +86 10 65323131, ext 1101
Fax: +86 10 65323107
Contact the contributor: ahodges@unicef.org; bibihodges@intnet.mu

UNICEF

Oxford Policy Management Group
6 St Aldates Courtyard
38 St Aldates
Oxford, OX1 1BN
UK

Tel: +44 (0)1865 207 300
Fax: +44 (0)1865 250 580
Contact the contributor: admin@opml.co.uk

Oxford Policy Management, UK

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'Mozambique: test case for coordinating effective aid practices?'

'Is aid in crisis?'

'A troubling dilemma: capacity building in the midst of conflict'

'A new agenda to eradicate poverty in Africa'

Achieving Turnaround in Fragile States - Mozambique