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?

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

Themajority of people still work in agriculture, even though this accounts for onlya fifth of the total Gross Domestic Product (GDP). The return of more than fourmillion refugees after the war and the process of liberalisation made itpossible to start rebuilding the economy. High levels of aid have resulted inrelatively high growth rates and improvements in public services.

Dependenceon aid for about 50 percent of the public expenditure has meant that expendituredecisions essentially involve the government executive and foreign donors. Mozambiquehas had a weak civil society and a weak parliament and these do not provide effectivechecks on the executive. The government is primarily accountable to donorsrather than to Mozambican society.

Findingsinclude:

• Althougha growing portion of aid is provided as general budget support, more thanhalf of aid is provided directly to line ministries as sector funds orunder traditional project modalities.
• Much ofthis aid is also off-budget.
• Aiddecisions are highly fragmented, making it difficult for the government toplan public expenditure to meet national policy priorities.
• Thissituation means that ministers prefer to negotiate additional resourcesdirectly with donors, and incentives for the government to improve overallresource allocation, for example through the Medium Term ExpenditureFramework, are weak.

Thiswill only change if there is a more decisive shift from project aid to budgetsupport and most aid is brought on-budget, which islimited by some donors’ unwillingness to give up direct control over the use oftheir aid resources.

Theauthors argue that, even if these changes in aid occurred, there is noguarantee that the government would manage its resources effectively due to:

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

Thesestructural constraints are likely to change only gradually as the countryreaches a higher level of economic and social development.