The costs of government ‘owned’ aid in Mozambique

Mozambique is one of the poorest countries and the largest recipients of foreign aid in Africa. It is also being seen as a successful example where aid had been harmonised, mostly through sector wide approaches and direct budget support. Reduced costs and increased government control are the aims of aid harmonisation.

Efficient use of the aid given through direct budget support depends on the capacity of government to direct policy. The government of Mozambique faces several challenges. For the last ten years, the political system, public administration and policy have been in a state of transformation. Other challenges include: a fragile democracy and weak parliamentary system, high political and economic centralisation, administrative hierarchies that make it difficult to plan resource allocation between sectors and a lack of trained personnel (with less than three percent of ministry officials having university degrees).

A study carried out by the International Development Department at the University of Birmingham, UK, questions whether there is a shift of control over aid. Donor aid accounted for more than half of Mozambique’s total public expenditure in 2003. Much still remains in the form of off-budget project aid, giving donors the power to dominate policy discussions and weakening government’s accountability to its constituents. The study questions whether a shift is occurring under budget support.

Interviews with members of the donor community, and with members of various government ministries in Mozambique, reveal that:

• A large proportion of donor funding has been allocated direct to ministries, provinces, districts bypassing government systems.
• Most bilateral donors and the World Bank in Mozambique now subscribe to ‘harmonisation’ through general budget support, sector budget support or ‘basket funding’- where donor funds are pooled for the exclusive use of one ministry.
• Most government officials feel that harmonisation helps to align aid with the government’s anti-poverty strategy and system of financial management.
• A few donors and government officials, however, think project aid is better as it imposes fewer administrative demands on government, reaches targeted populations and keeps donors in touch with grassroots realities.
• As well as benefits, harmonisation involves new costs for government as well as benefits, such as administrative costs and conversion costs where donors and government have to work out new relationships.

The research offers clear lessons to policymakers considering Mozambique as a test-case for ‘harmonisation’ approaches to aid management elsewhere. The evidence suggests that harmonisation, ownership and reduced costs are not always compatible goals in the short term. Donors should bear in mind that general budget support:

• generally succeeds in aligning the policies and management procedures of donors and governments
• can also increase local control as finances become subject to the budgetary procedures of national political systems
• can have the paradoxical effect of introducing donors more deeply into the heart of government
• can impose new administrative costs in the transition.

On a final note the author points out that donor collaboration through aid harmonisation introduces the risk of collective donor decisions to withhold aid, but that a compact between the government and donors in Mozambique has helped to ensure stability.

Source(s):
‘Mozambique: The Costs of Owning Aid’, Public Administration and Development 25, pages 415-424, by Richard Batley, 2005

Funded by: International Development Department, University of Birmingham, UK

id21 Research Highlight: 13 September 2006

Further Information:
Richard Batley
International Development Department
School of Public Policy
University of Birmingham, Edgbaston
Birmingham, B15 2TT, UK

Tel: +44 (0)121 414 4985
Contact the contributor: R.A.Batley@bham.ac.uk