General Budget Support speeds up national reform in Tanzania

Donors and recipient governments are increasingly preferring General Budget Support to other forms of aid: development aid delivered directly into national budgets. This now accounts for 20 to 40 percent of government aid in many African countries. The results for development and poverty reduction have been mixed.

Flexible funding from donors,in the form of direct support to national budgets, is expected to empower developingcountry governments and increase their ability to reduce poverty. This is thekey principle behind ‘General Budget Support’. This approach has beeen applied to Tanzania, though poverty impacts are uncertain as there hasbeen no household survey since 2001.

A team of researchers from Daima Associates, Tanzania and the Overseas Development Institute, UK, carried out the first major joint evaluation of acountry’s experience of General Budget Support in Tanzania. The Government of Tanzania commissioned the research,along with 14 external agencies providing direct support to the nationalbudget.

The immediate effects offunding were studied, as well as the government's ability to influence the factorsbehind poverty. Key findings include:

• The immediateeffects of General Budget Support have been strongly positive, facilitatingnationally-driven reform. However, it has failed to bring change in several keyareas of local government, the public sector and the legal sector.
• General BudgetSupport has been associated with a major expansion in health and educationservices. Access to social services has improved, but poor people still usegovernment services rarely, partly due to problems with efficiency and quality.
• There have beenlarge improvements in macroeconomic stability, investment and growth. Publicfinancial management has improved. Domestic debt has been stabilised and publicarrears cleared.
• There are, however,few signs of increased public spending efficiency or democratic accountability.

Nonetheless, Tanzania has achieved several major changes over the last tenyears. This progress has been driven by internal political commitment, but itis unlikely to have been achieved without General Budget Support. However, isit possible to generalise from Tanzania’s experience?

Tanzania differs from other countries in the region – having enjoyeda stable political regime, support for structural reforms and a capablefinance ministry since 1995. But it also shares the problems of its neighbours,such as aid dependency and the fact that most aid still bypasses nationalbudgets. The evaluation concludes with several wider lessons about GeneralBudget Support:

• Budget fundingcan only have a modest influence on public sector reform and institutionaldevelopment: domestic politics is also influential.
• The maincontribution of budget support is to increase funding for development purposes thatcan be used according to government strategies – so finance has to be sustainable,predictable and timely.
• General BudgetSupport can reduce transaction costs.
• It can also helppoverty reduction, but only indirectly and in the long term.