Improving aid effectiveness in Africa through general budget support

Donors have promised significant increases in aid to developing countries, and proposed different ways to enhance its effectiveness. General budget support, accompanied by public financial management reforms, is central to the new approach. But aid effectiveness depends crucially on a better understanding of institutional change within recipient countries, and of donors' role in promoting it.

An article from the Overseas DevelopmentInstitute, UK, surveys the literature on improving aid effectiveness, focusing onGeneral Budget Support (GBS). By providing direct support to developing countrybudgets, GBS aims to allow governments determine aid priorities themselves,reduce the costs of fragmented, project-based aid delivery, and strengthen domesticaccountability of aid use.

As more resources are channeled to developing countries, andincreasingly in ways that are supposedly more compatible with national systemsand procedures such as GBS, budget processes become more important. Donorstherefore view Public Financial Management (PFM) reforms to strengthen budgetsystems as crucial to the success of GBS.

There is little evidence to support increasingaid through GBS. However, GBS now amounts to about US$5 billion a year (about 5percent of total Overseas Development Assistance), much of it to Africancountries. Recent assessments of GBS programmes and PFMreforms highlight a number of obstacles to their success:

• GBS programmesmay lead to macroeconomic stability, growth in government spending and anexpansion of social services, but underlying political realities may beunchanged: in Tanzania, GBS did not lead to improved efficiency of publicspending or accountability.
• Often, the introduction ofGBS has not been accompanied by a reduction in the use of other aid deliverysystems, undermining some of its potential benefits.
• Recipient governments havelimited capacity to manage complex, technical processes such as PFM reforms.
• Donors favour approachesthat introduce several reforms simultaneously without paying enough attentionto their political and technical feasibility.
• Donors have not fullyunderstood the different factors behind recipient government willingness toundertake reforms: GBS success relies on the existence of a domestic movementfor reforms.

The corrupt nature of the political systems indeveloping countries is often blamed for the failure of aid programmes. Butother institutions also play important roles:

• Donors should understand howrecipient governments behave, and the potential impact of their own actions ondomestic politics.
• Donors supporting GBS havetended to support governments in power, overlooking the importance ofstrengthening domestic accountability institutions, even undermining them bytaking over their functions.
• Supporters of parliamentarymonitoring of budget processes need to understand the institutional andpolitical context, along with the motivations of the individual legislators.
• Supreme audit institutionsthat check government accounts face many limitations, and need a supportiveenvironment, including good relationships with the finance ministry and theinternational auditing community.
• Civil society can pressuregovernment to improve budget implementation, as the Uganda Debt Network has,and provide access to budget information.