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 aidgiven through direct budget support depends on the capacity of government todirect policy. The government of Mozambique faces several challenges. For the last ten years, thepolitical system, public administration and policy have been in a state oftransformation. Other challenges include: a fragile democracy and weakparliamentary system, high political and economic centralisation,administrative hierarchies that make it difficult to plan resource allocationbetween sectors and a lack of trained personnel (with less than three percentof ministry officials having university degrees).

A study carried out by theInternational Development Department at the University ofBirmingham, UK, questions whether there is a shift of control over aid. Donoraid accounted for more than half of Mozambique’s total public expenditure in 2003. Much stillremains in the form of off-budget project aid, giving donors the power todominate policy discussions and weakening government’s accountability to itsconstituents. The study questions whether a shift is occurring under budgetsupport.

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

• A large proportion of donor funding has beenallocated direct to ministries, provinces, districts bypassing governmentsystems.
• Most bilateral donors and the World Bank inMozambique now subscribe to ‘harmonisation’ through general budgetsupport, sector budget support or ‘basket funding’- where donor funds are pooledfor the exclusive use of one ministry.
• Most government officials feel that harmonisationhelps to align aid with the government’s anti-poverty strategy and systemof financial management.
• A few donors and government officials, however, thinkproject aid is better as it imposes fewer administrative demands ongovernment, reaches targeted populations and keeps donors in touch withgrassroots realities.
• As well as benefits, harmonisation involves newcosts for government as well as benefits, such as administrative costs andconversion costs where donors and government have to work out newrelationships.

The research offers clearlessons to policymakers considering Mozambique as a test-case for ‘harmonisation’ approaches to aidmanagement elsewhere. The evidence suggests that harmonisation, ownership andreduced costs are not always compatible goals in the short term. Donors should bearin mind that general budget support:

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

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