Select Committee on International Development Minutes of Evidence

Examination of Witnesses (Questions 1 - 19)




  1. Good morning. Firstly, many congratulations on your new appointment, Permanent Secretary. I think this is the first time you have been to a committee to give evidence since you became Permanent Secretary, so many congratulations on that. Can we take this opportunity to thank, through you, all your officials and departments who help the Committee, particularly when we are overseas. That is very much appreciated. We fully recognise that having a select committee visit to, say, West Africa—or indeed anywhere in the world—is an extra demand on your team's resources. We hope that by our having a better understanding of what DFID is seeking to achieve in countries that we can often help you explain not only to our colleagues in Parliament but to a wider world what DFID is seeking to achieve. These sessions always tend, by their very nature, to concentrate on potential weaknesses, but I think it would be fair to report that practically every witness we have had before us from other organisations congratulates DFID on DFID being in the vanguard of reform and of delivery. For example, Mr Battle and myself were in Washington the week before last and we met with USAID and I think it would be fair to say that they saw DFID as their role model. So if you have ways of how they can spend the Millennium Challenge Account money they would welcome a letter in the post because they are all clearly grappling with that at the present moment. Yesterday we heard the senior members of the World Food Programme who came to talk to us informally about the situation in southern Africa. Again, they made the point that DFID was one of the first to convert pledges into action and that you had been enormously helpful in enabling them to set up a whole number of facilities which otherwise they would not have been able to achieve. I think it is important, therefore, that a session which may well concentrate on frailties and potential weaknesses, when we put it into context overall, the general message that this Committee hears from people making representations to us is one of support and congratulations for the Department. That being said, Permanent Secretary, what is the question that you would least like us to ask, so to speak. When you became Permanent Secretary, what were the areas of the Department's performance and delivery that you thought you needed to give attention to?
  (Mr Chakrabarti) Thank you, Chairman. Maybe I could just start with one or two general remarks. Firstly, your remarks are greatly appreciated in our Department. We also feel we gain from the Committee's visits and its investigations partly because development is a sort of journey of exploration and there are no certainties in it. The more people who question and ask about the subject, the better. Also it is a way of partly explaining to the public what we are doing. I do not think it gets enough airtime domestically and to have a Committee looking at some of these issues is very, very useful. On my left is Richard Manning who as you probably know is Director General (Policy); on my right Mark Lowcock who is Director of Finance and Development Policy. What we will try to do is give you a collective view on some of these issues. What is the question I have found most difficult? I think the question we have been grappling with for the last six months—and has been touched on also by the NAO report—is how do we set our objectives and how do we measure how we are successful in performance management. This is particularly tricky because, unlike some of the parts of the public sector, we are a collective effort involving many players, other donors, but also many governments. Attributing success or failure to one part of the system is quite difficult in that process. But we do need to try to explain what we are doing well, what we are not doing well, probably better than we are doing at the moment. We have made massive strides in this direction through our public service agreements, but we are not there yet and the NAO report was absolutely right on that. That, I have seen, as being a major task internally. Externally, I do not think it will surprise the Committee to hear that the Department and the Government are quite clear that Africa remains the number one challenge. If you look at where the Millennium Development Goals are going, that is where we are most likely not to make it in terms of 2015. So, all hands to the pump in trying to think through how we can get there. Those are the two challenges, both internal and external.

  2. The departmental report, unless I have missed it, does not explicitly set out objectives. There are a large number of targets and, as you say, you are doing your best to measure the achievement of those targets. Is there a list somewhere of departmental objectives?
  (Mr Chakrabarti) The best description of departmental objectives are the two Public Service Agreements we have had. But, as I said earlier, I do not think they have been fully translated into all our actions as yet. The development goals in some ways are the objectives underlying both those Public Service Agreements and will underlie the next one too. They are, really, the driving force behind staff's work. I think this is an issue we ought to discuss with the Committee—whether the departmental report might better be laid out in terms of the Public Service Agreement objectives. From my point of view it probably should be, but I think we need to test that out a bit.

  3. To what extent is there a tension between the country team approach that clearly DFID has to have in different countries to which we are giving support and also the sectoral nature of the Millennium Development Goals, such as water, public health and so forth? Clearly in a big country like Ghana you can have a member of your team concentrating on each of the sectoral goals and indeed, in Ghana, we met them and they are all doing excellent stuff. But there must be some countries where the support we are giving is not sufficiently large for that. Is there a tension between country development teams and sectoral goals?
  (Mr Chakrabarti) There clearly can be if you do not have a process by which you resolve that tension. What we are trying to move towards is having that sort of process whereby the Millennium Development Goals would be reflected in the new Public Service Agreement. Then we would expect each of the country directors—Africa, Asia, the rest of the world—to come up with a strategy for achieving the PSA outcome that they are responsible for. That will mean that they have to make choices at country level. We are part of a collective effort; we do not have to be in every single sector in every single country and we should look at comparative advantage at a country level to try and work out where we can best make the real difference. I think in some of our medium sized programmes that sort of choice is already being made actually by many of our country managers.

Ann Clwyd

  4. I wanted to ask you about evaluation reports. You have a section in the report on measuring and monitoring progress. What do you mean by evaluation reports? Are they internal evaluations or are they internal and external?
  (Mr Chakrabarti) They are a sort of a mix really. Let me go through the hierarchy of types of evaluation. I go back to what I said about collective effort. I think the first tier evaluation is work that is underway throughout the international system, jointly, if you like, to try and measure whether we are all being successful together. A lot of that is led by the OECD or by the World Bank and we are part of that system. For example, the work on when is aid effective and when is it not, that is very much World Bank led. That we can all join in and it is pretty public. Then there is the sort of evaluation of whether DFID is a successful institution or not. That is very much the OECD/DAC peer review process. Again that is made public and we need to respond to that publicly. Then there is a third tier which are the evaluations we conduct within DFID which are a mix of, say, country teams looking at what they are doing, implementing programmes, trying to learn lessons, evaluating on the run, if you like, and then trying to implement those lessons. Then there is a sort of standing back, a central evaluation function within the Department. I would hope we could make more and more of those public ones, the country evaluations in particular. I think it is quite important because, again, it is part of a collective effort in any one country, to say where the system has failed, where it has succeeded. Our plan is to do much more of that than we have done in the last few years. I think that would be fair to say, Mark?
  (Mr Lowcock) Yes. In terms of internal evaluation of activities we finance, we have three systems, really. For our major projects—which amount to 85 per cent of the bilateral portfolio—we look once a year in a snapshot at whether the activities are achieving their objectives and we score them. We have a PSA target, reflecting whether they are risky or not—we break down by risk in other words—to improve the quality of the portfolio. Then, at the end of spending on each of our major activities we do a Project Completion Report and we analyse the results of those and try to spread the lessons, and so on. Thirdly, we have a category of ex-post evaluations where, some years after spending has been completed, we go back and have a look at what the lessons are and if we achieved the objectives intended. All of these processes have a degree of independence in them. Many of the evaluations of on-going activities are conducted by people commissioned from outside the Organisation by the spending manager. The third category are completely independent in the sense that all that DFID does is write some terms of reference for questions we would like to be answered and then commission some outsiders—the Overseas Development Institute or some other experts—to provide an independent view for us. Those studies we publish, warts and all. The criticisms are very transparent. It is in that particular area that we are very conscious that we would like to have a bigger programme in the future than we have done in recent years in particular.
  (Mr Chakrabarti) And it is going to be debated by our Development Committee two days from now, I think, as to what the size of the programme might be in future. I think we would all like to see a much bigger evaluation function of that sort.

Mr Khabra

  5. The Public Service Agreement on access to water appears to show an improvement. But the target has been changed from "percentage of population with access to safe water" to "access to an improved water source". There would seem to be a big difference between the two things—improved is not the same as safe. Why was the change made and how many other PSA targets have been changed?
  (Mr Manning) We have tried to design the indicators consistently with what is happening internationally. As you appreciate a lot of this information is put together by the UN and other international agencies based on the country reporting. I think I am right in saying that the indicator we have changed is the one for which information is more readily available. I accept there is a difference between the two. I think we will have to write to you with a note on the numbers where changes of that kind have taken place. There may be one or two others where there have been changes. We have usually changed essentially because of what is available statistically. We have been investing—Clare Short is very keen on this—more in capacity development in developing countries to try to improve the quality and quantity of relevant statistics on all aspects of the Millennium Development Goals. The UN have devised a list of some forty indicators of the eight Millennium Development Goals and they have hired Jeffrey Sachs and a team to lead a consciousness raising effort internationally to try to get more understanding of the Millennium Development Goals. We are content with the way this is being undertaken; we accept you need to measure a lot more than eight things in order to measure the eight themselves satisfactorily. Equally, we do not want the number of measures to proliferate. We are keen to find standard international measures that are collectable. I think it is for that reason that we changed this one.

  6. What difference has it made actually?
  (Mr Manning) I think we will have to write to you to give you a proper answer to that, to assess what the difference is in coverage.[9]

Hugh Bayley

  7. DFID has a presence in 145 countries which must pose an enormous managerial burden on the Department in terms of your relationships with the Governments of the countries concerned, your partners in those countries, and collaborating with other agencies. It strikes me that may be you are biting off more than you should be chewing. What is the trend in terms of the numbers of countries in which DFID has a presence?
  (Mr Chakrabarti) The trend is to concentrate more resources in a few countries. You are right. The general proposition you are making is one we share, which is that there is a managerial stretch. There are also issues about additionality; are we really being as effective in quite so many countries compared to if we concentrated on fewer? The Dutch have concentrated very, very sharply so this is a live debate. It is very live at the moment because we have started work on what should be our medium term strategic priorities for resource allocation. It is very timely because, as you have seen in America, they are doing pretty much similar sort of work on a Millennium Challenge Account. Where should they focus? The trend is in the right direction and Mark can give you some of the concentration ratio figures.
  (Mr Lowcock) Shall I just mention a couple of these figures. In 1997-98, 57 per cent of the bilateral resources were spent in the top 20 countries. That increased to 64 per cent in 2001. Based on our projections for future years we expect that ratio to rise. We also have a list of countries we expect to graduate from programmes. There are about 15 countries over the next few years which we would hope to be able to conclude our direct government to government work in. One of the reasons why we have that very big number you mentioned—140 countries or so—is that we have not taken the step of saying that we want to close down the opportunity say for an NGO to come to us for a grant to work in a particular country even if we are not there, or for a research programme which is part of a broader effort to be excluded from a particular country. So there is a very big tail of countries in which we have a small number of small spending activities which, in many cases, will not involve a DFID presence on the ground but will simply involve a grant, often to an NGO actually. That is also part of the way of managing the burdens on the Department. Clearly there is an agenda of greater focus in the future which we need to see.

  8. When you are taking decisions about where it would be appropriate to pull back from, you must look at the idea of the comparative advantage that DFID can offer working in a particular location. Can you say a little bit about how you decide whether there is a DFID comparative advantage, particularly in relation to the growing trend towards programme aid. If you have a number of donors simply collaborating on contributions to an education department spend, or something like that, how is it possible to talk about a comparative advantage? And how do your PSA targets require you to explain explicitly where you provide a comparative advantage?
  (Mr Chakrabarti) I will have a general stab at that and I think Mark has East African experience and Richard can give us more detail. I think in general we believe that we are particularly effective in reforming environments because we are particularly good at policy dialogue with the World Bank and others in pushing the policy dialogue in certain countries. In low income countries where there is reform happening through Poverty Reduction Strategy papers and so on we have tended to push more of our resources into those countries as a clear indication that that is where we think we are more effective. That tends to be backed by what the World Bank and others believe of us, believe of our own skills. They tend to say that we are particularly effective in those environments. So it is a reinforcement from the rest of the system. In terms of which sectors within countries, we leave those choices pretty much to country teams to have a first shot at and then throughout the centre, the people in the headquarters, the people say maybe or maybe not and they argue the toss much more with the country teams. That is resolved through a committee which Richard chairs which is called the Department Committee.
  (Mr Manning) Let me give you an interesting example where the situation you describe is quite active. If you look at education in Africa and where the children are who are not in school, one category of country where performance is rather below average is the Francophone countries of the Sahel. If you took an Africa-wide perspective on how to achieve that particular Millennium goal in Africa, you might say there is a strong case for DFID to get seriously engaged in education in the Sahel. So far we have decided that would not be in accord with our comparative advantage because, quite frankly, we would have a lot to learn about the system; we are weak in having people with the language skills. We could, of course, as you say, go in in a sort of silent partnership mode and, let us say, give the Dutch some money to spend in Mali, but it is not clear that we are adding much value by doing that, so we have tended to think that we would do better in reaching the Millennium Goals in Africa in concentrating our bilateral aid where we can see prospects of reform—Tanzania for example, Ethiopia, and so on—and then to raise the consciousness internationally of the need to come seriously to grips with the very difficult problems in the Sahel. You could take an alternative stance and say that we could really develop significant new programs here. Indeed, some people have suggested that is exactly what we should do. But we have taken the view so far that the problem is not that there are not enough donors, the problem is that the present system is not delivering adequate results and there is a limit to what we feel we should be doing.

  9. With every programme of expenditure which you sign off there is an opportunity cost. It is difficult to understand—it is not intended to be provocative, it is a very serious comment—why we are in Latin America at all, with a relatively low level of programme, the language difficulties and lack of expertise. There are other countries with greater historical links with and understanding of and language affinity to Latin America than we do. If we are focussed on poverty alleviation surely it is worth making the effort to find ways of leaving work in Latin America to those who have a comparative advantage over us and to strengthening or deepening our African experience to work in Francophone countries. One of the things that struck me when we visited Ghana was that there was a lot of movement of people across borders. Education provided to people in Ghana may end up helping the economy of Côte d'Ivoire or vice versa. Does that not make sense? Looking at the tail of small programmes, looking through the report, I find it quite extraordinary that we still have programmes in Brunei and in Singapore. Why do we have a programme in Singapore which probably has a per capita income greater than some EU member states? In South Korea, which is a member of the OECD? You talked about having a list of 15 or so countries where we are working out with their government—I do not think we should just pull the plug—respectable ways of moving on to areas where we have a comparative advantage. Over what sort of time scale will we regroup our resources into those areas of work on the Millennium Goals which are going to achieve most?
  (Mr Chakrabarti) There are a number of questions there; I shall try to go through each of them. Firstly, Latin America, the points you make are the sort of argument we have internally, and one side of the argument was very well put by you. I think the other side of the argument is 77 million poor people are in Latin America/Caribbean; six out of the ten most unequal countries in the world are in Latin America. There is a base case, if you like, for why DFID should be involved. You could argue that we are substituting for the political resources of those governments because they have the resources to re-distribute if they wish to. I would argue—and I think my colleagues would argue—that at least for a time limited approach we could show those governments how to successfully re-distribute their resources by having minimal engagement in some of these Latin American countries. Beyond that, $12Ö billion worth of multilateral finance goes into Latin American and the Caribbean; an amazing amount. How effective is that? Through our bilateral engagement we can then engage with the Inter-American Development Bank and get them to be much more effective. It is interesting that they have just adopted the Millennium Development Goals, partly through our influence; it has taken a long time. I think that Latin American engagement has helped that. There are, of course, one or two quite poor economies in Latin America like Bolivia, and so on. There is an argument on both sides here about that which I think is played out. Again it is going to have to be addressed in our strategic look in the coming months. On the PSA—we are in the middle of a negotiation with the Treasury at the moment—we would like to have a target of some 85 per cent of our bilateral resources going to low income countries by 2005-06 which would be a massive shift from what was 65 per cent in 1997. This is going to be quite a hard thing to deliver given the existing commitments and so on, but we are trying to set up the incentives in a way you want. Brunei and Singapore I presume—I do not know for sure—these are old commitments which are being worked on; we are not making new commitments in these countries.
  (Mr Lowcock) The Korean figures relate to humanitarian assistance from North Korea. I would like to pursue the Singapore question also.

  10. Singapore is more serious; Brunei is a tiny, tiny amount.
  (Mr Manning) We certainly do not have a government programme, but there may be some regional institution in Singapore that we may be involved with. We will check that out and get back to you.[10]


  11. One of the things that struck us about the US Millennium Challenge Account is that it is going to have such a high conditionality that we may well discover that the United States are diverting a lot of that money to areas like Latin America, Central America and very little of it going to Africa. I think one of the things the Department may well have to consider in the future is not necessarily having a global reach but also looking to see where other donors are perhaps not giving as much as they should do and hence it may well be necessary to focus even more resources on Africa simply because others may be withdrawn.
  (Mr Chakrabarti) Point taken. I think we are now the largest bilateral donor to Africa.
  (Mr Lowcock) We have been analysing exactly this recently. According to data reported to the OECD for the year 2000, the UK is now the biggest bilateral donor in Africa. Actually, I think we would prefer that others were bigger than us given that they have much bigger aid programmes. This is not a message which we read with particular relish, but it is the case. We have doubled our programmes in Africa over the last four or five years. The beginning of that period was the end of a period which saw overall aid to Africa halved and clearly Africa is very resource constrained. We would like more aid collectively focussed on Africa, including from us.

Mr Robathan

  12. Regarding comparative advantage and historical connections, of course we have great historic connections with India. But it is also our biggest country programme. It seems to me—and it has seemed to me for some time—that when you have a country which is spending enormous amounts of money on armaments (topically nuclear weapons) and can put an army of half a million or whatever on the Kashmiri border, and is extremely bellicose at the moment, I think I would not be alone in this country in asking whether it is appropriate that we are giving aid to the undoubtedly poor people in this country when the Government of India sees its priorities in a different area, in a different way. What would you say to that?
  (Mr Chakrabarti) I think it is a perfectly fair question. Our aid in India has increasingly moved to focussing on four states, as you know, away from the federal level. In terms of budget support, I think there is only one state, Andra Pradesh, which is receiving budget support. This is part of our dialogue with the Indian Government. The fungibility question is part of the dialogue; we are seeing them again in July and it will be part of the discussion then. I would say that within the Indian context—and Mark has very recently been there—the systems within the Indian Government are such that they give us much greater comfort for where our aid is going than in many other places, I think, in terms of ensuring that aid is spent on what we said it was going to be spent on. You were very comforted by what you saw there, I think.
  (Mr Lowcock) Yes, we were exceptionally impressed by the accounting and audit standards which are managed by the Indian sister organisation of the National Audit Office. We have a high degree of confidence that where they say budget funds are going is where they are actually going.

Mr Battle

  13. Can I take you back to the comments you made at the beginning, this relationship between budget support and targets really. First of all, is it possible to know how much the programmes over the years have shifted from projects to budget support (I understand budget support as money given over to governments to fit to their programmes). Of those 145 countries how many are straight to budget support?
  (Mr Lowcock) In 2001-02 we were providing budget support in 17 countries, a total of about £290 million. In recent years the proportion of the bilateral programme going in budget support as opposed to other forms like projects has increased from about 8 per cent to 18 per cent.
  (Mr Manning) I think an important thing to bear in mind is that even if you went back quite a long way you would find a lot of our assistance being delivered in non-project form, but typically being delivered through import programmes of one kind or another. In the 1980's and early 1990's we did a lot of—as you might say—balance of payment support which meant essentially that we were providing money into government budgets but through a route which was all around import documentation. Not only us, but the World Bank and many other donors did the same. We were providing flexible support into the budget without saying so. When initially in Uganda we moved from that to saying "Let's disburse straight to the budget" we then had to ask ourselves a whole series of new questions which I think have been very constructive. For example, we have had to ask ourselves questions about financial accountability; we have had to ask ourselves questions about ghosts on the public payroll; we have had to ask ourselves questions about how funds flow from the Ministry of Finance to a locality. We can certainly provide you with figures, but I think we want to bring into the equation the fact that we have had a long tradition of providing non-project support but through a route which did not in fact face us with the kind of questions we have to face in budget aid. I must say that I feel the disciplines that budget aid puts on us—the requirement to look at these systems—has been enormously productive in the kind of dialogue we have been having locally with recipient governments.

  14. When we were having conversations in Washington around the American proposal for the Millennium Challenge Fund—which should be a massive boost in the volume of aid money—the one area where there was certainly most scepticism was in budget support. They say that budget support is really risky and I even got the impression from some of the conversations that the Americans were looking at setting up their own NGOs to deliver particular projects in order to spend that money rather than go down the road of budget support. How are you ensuring that allocations through budget support are then tied into those broader Millennium Development Goals? Otherwise, as we heard in America, the Millennium Development Goals become aspirations. We might like to get there but we have no chance of doing it because we are locked into country programme allocations that we have no control over. How do you manage that whole process?
  (Mr Chakrabarti) Shall we talk about two things? One, the Americans and where they are moving to because I think it is quite an important part of this debate; and then about how budget support gives you outcomes which are around the MDGs. On the Americans, I think they have shifted. They have always done some budget support in various countries but they do not always say so publicly. Interestingly now they are seeing it as part of their array of instruments. They will do lots of projects but they have begun to buy into the idea that projects, particularly when you have a huge increase in aid, if you give all of those as projects you would impose such huge transaction costs on the system it would be mad. So they are looking at budget support as part of their range of instruments. That is a good outcome. Mark, do you want to say a word about outcomes and MDGs?
  (Mr Lowcock) This is exactly the key question that we ask ourselves when we are appraising a proposition to provide budget support. What outcomes are we going to generate? We only will go down this route in countries where we are reasonably confident that putting money into the budget will translate into higher spending on primary education, primary health and so on. For example, if we take the case of Uganda, 50 per cent of the Government of Uganda's budget comes from aid. Uganda has made tremendous progress on the Millennium Development Goals in the last ten years. The number of children in school has risen from 2Ö million to 6Ö million. The incidence of HIV/AIDS has fallen by about half. The poverty head count has fallen from 56 per cent in 1992 to about 35 per cent in 2000. Most of these achievements arise from public expenditure, largely financed by aid. So when we first looked I think in 1999 at generalised budget support for Uganda the context we were looking at was one in which we had confidence that a government which, were it to have access to more resources, would put those resources to the priorities we thought were the right ones and would be able to deliver outcomes from them. It is exactly that kind of process that we have tried to follow elsewhere.

  15. If I could push you a bit further, would those outcomes be tied in the country to the Millennium Development Goals? Or would they be given a looser target so that they could redefine education targets that are away from that crucial aim to get to the Millennium Development Goals in 2015?
  (Mr Lowcock) The general framework for most of the countries where we are providing budget support is that they have a poverty reduction strategy which sets out medium term goals. In the countries we are dealing with those medium term goals are very closely aligned with the Millennium Development Goals. For example, Tanzania and Uganda have visions which go up to 2010, 2015, 2020, which are focussed on exactly that set of goals. That is part of the basis on which we are ready to put money into the budget.
  (Mr Manning) At the same time we have to accept that all the countries are not at the same point on this path. It is quite important in our dialogue with countries that they should have goals that they themselves recognise and think they can buy into for a particular period which may not be up to 2015; it may be 2020, it may be 2010 or whatever. We need to be flexible around this and what we need to see is that they are moving in the same direction in ways that make sense from the point of view of the starting position of that country.

  16. That flexibility could massively dilute the capacity to reach the Millennium Development Goals in time, could it not? Do your people in the Department try to tie what is happening in the individual countries, ensuring that the country teams are getting towards those goals? Do you have people monitoring that in budget terms and in output terms?
  (Mr Manning) Not only are we doing that, but we are trying increasingly to have an international system that does it. We do not want every donor having their own system and asking the same questions. We want a centrally mandated system with strong UN, World Bank and OECD leadership which will deliver these results. If you take the area of education which in a way is the clearest because the Millennium Development Goal is 100 per cent—so you are either there or you are not—we worked hard and I think, in the end, effectively to persuade UNESCO and the World Bank to collaborate on an annual report which will produce, based on work by the UNESCO Institute of Statistics, a reasonably robust set of figures—I do not want to put too much weight on that; there are always problems with them—which will enable us to monitor this. The World Bank put to the Development Committee in April proposals for fast-tracking a number of countries where it could identify that there was both a big need—ie a long way to go to the Millennium Goal—and a reasonable set of policies. These are the kind of approaches which we think make sense. As we have said already, it does not mean that in every one of those countries the UK should be the people who are taking the initiative; in some countries other people should be doing it. But collectively—I think it is quite important to stress the collective part—the international system needs to look on a regular basis as to how we are progressing against each Millennium Development Goal; there needs to be a robust international system for collecting the data and presenting it at policy level. This needs to have buy-in from developing countries as well as developed countries and we need to get as much of a consensus as we can on how to get to the Millennium Development Goals in a timely way. Each country's path will be specific to that country but it needs to be aligned, as far as we can, to the international endeavour.

Hugh Bayley

  17. You have been answering John's questions with a kind of management accountant's hat on. What about the financial accountant's hat? More and more British money for development assistance goes in programme support. Surely we should be extending our audit trail into the Government departments of other countries in order to provide accountability to the people we represent. When I go out to people in York and tell them I want them to pay more taxes to go towards development assistance they rightly want to know where the money is going—on immunisation programmes for instance and not Mercedes vehicles for health ministers. Do NAO auditors go into other government's departments? Are they welcome? What access to records do they have?
  (Mr Chakrabarti) We are developing with the NAO a risk framework for deciding when to supply that support and when not. They have actually approved documentation. Then we are also working with the NAO with some other like-minded donors who are also providing budget support. What we do not really want is four or five different systems being imposed on the relevant country in question by people providing support. So the NAO is leading the way with the auditors of the other countries to make sure there is a common audit. That would be a major prize if we could get there. At the country level I presume NAO value for money studies would get into where the money has gone and what it has bought. Do you want to say anything about that?
  (Mr Lowcock) Yes. One point I think it is important to make at the outset is that part of the reason we are investing in budget support is that we are very concerned about the quality of financial management and other government systems in developing countries. The way aid has been managed over recent decades has, in too many cases, tended to erode rather than build those systems. A crucial part of the rationale is for us to have a greater interest in building up the standards of accounting and procurement and the quality of civil servants and the quality of management and the role that Parliament plays and all the systems that developed countries have to ensure that there are incentives for good public expenditure. The NAO have agreed systems with us for the accounting and audit discharge for our budget support which rely on records provided by their sister organisations essentially in partner countries. The NAO have links with the comptroller and auditor general in many of the countries we work, so they have a dialogue around that. But there is absolutely no doubt that there is a major agenda of strengthening those institutions and strengthening not just technically but also in terms of the way in which their findings are acted on. There is a big agenda of building up the effectiveness and the seriousness with which the Governments take the PAC in their own country. This is a really big agenda for us which we and other donors have not put enough effort into in recent decades and which we are now trying to do better on.

Mr Walter

  18. I wonder if I could bring you back to the quantum of bilateral expenditure. Our analysis—and I am sure it is the same case for yours—is that the five largest recipients of aid received something like 30 per cent of the total bilateral expenditure. The top ten received nearly 50 per cent. I wonder if you could just take us through the criteria that DFID use in deciding the allocation of those total resources to individual country teams. Could you give us some recent examples of what the policy process is in deciding what the total amount of aid would be. We do not need to know about the £5,000 to Brunei; I think it is about the value of a first class air-ticket. Maybe one of the low income countries that is under stress; just take us through that process.
  (Mr Chakrabarti) Why do I not try to describe the system by which we make decisions at the moment and what our current thinking is about that, then Mark might want to describe the Kenya example. That is quite an interesting example because it is a country which has moved from being a reformer to not being a reformer; what do we do? The system as we currently do it is that we try to set three year country budgets for all our recipients. We look at those every year. That is based on bids coming in for each of our country teams and what happens in the public expenditure review. The key criteria around aid effectiveness are how many poor people are in that country, how poor is that country? I think the second increasingly important one—which has been increasingly important in recent years—is to what extent has it a real commitment to reform, to doing something about that poverty? This can be encapsulated in what is a Poverty Reduction Strategy paper or some other plan or document. Those are key criteria for deciding country allocations. What is interesting is that we did a chart quite recently which we can send the Committee which shows that our aid is more focussed on developing countries than some other bilateral donors. One of the jobs we have is that we have to try to shift other people to move in that direction. Those are the sort of criteria we are at. Then we have this little study going on now which is looking at whether we can become even more strategic within that. Are there some further lessons below those two broad criteria that we can apply? Perhaps not going as far as the Americans who might be going to more mechanistic criteria around governments, economic reform, investing in people, but certainly thinking through whether some of the criteria can be applied at the more general level to come up with the right sort of allocations. It is interesting that EDF, the World Bank and IDA allocations all use quite detailed criteria which the Americans have been looking at. I think our distribution and IDA's is pretty similar, I suspect. Even though we have not been quite as mechanistic we have probably ended up roughly in the same place. We are looking at whether we can go further with that. I would like to take the example of Kenya because it is a really interesting example of how it changed tack.
  (Mr Lowcock) Once a year we run a resource allocation process for the organisation and we put to ministers a series of proposals for what the budget for the country programmes and other bits of the budget should be for the following two or three years. In the case of Kenya, in 1999 after many years in which we had a lot of concerns about the commitment of the Government there to reducing poverty and the quality of economic management and administration generally, a reform initiative was launched. A team of people of high integrity and technical competence was appointed by President Moi to run a reform programme. In response to that the leading donors made a commitment that once results started to be delivered they would increase their programmes. So DFID had been spending between £25 million and £30 million a year in Kenya—towards the lower end of that figure actually—in the late 1990's. In response to Kenya instituting this reform process and agreeing a set of measures with the IMF and the World Bank, in 2000-01 we increased our spending to nearly £50 million. At the beginning of 2001 the reform programme went off track; the Government failed to take a number of measures that it had committed itself to take, which we and the World Bank and others thought were very important indicators of their real commitment to reducing poverty. As a result in subsequent years we have reduced our spending plans. That is the way in which in practice we try to take account of changes in what is happening in the real world of the countries we are operating in when we put together our overall budgetary plans.

  19. You mentioned other major donors to Kenya. Have they gone through the same process? Who are the other donors?
  (Mr Lowcock) The important ones really are the World Bank, the EC and also the IMF. The IMF, not because they have a lot of money but because other people tend to follow their policy lead. They have done exactly the same thing we have done.

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