Fourth supplementary memorandum submitted
by the Department for International Development
HOW DOES
DFID MEASURE THE
IMPACT OF
FUNDS SPENT
THROUGH BUDGET
SUPPORT?
What is Budget Support?
1. General Budget Support is one of a number
of instruments that DFID uses to deliver aid. Other instruments
used are sector-wide approaches and projects. Budget support is
where:
— Funds are provided in support of
a government programme that focuses on growth and poverty reduction,
and transforming institutions, especially budgetary; and
— The funds are provided into the central
exchequer for partner governments to spend using their own financial
management and accountability systems.
Budget support is usually used to fill a financing
gap between the partner government resources and what it needs
to deliver its poverty reduction strategy. On average over the
last three years DFID has provided £248 million in Direct
Budget Support, this represents about 15% of the bilateral programme.
What are the expected impacts of Budget Support?
2. The overall goal of DFID's general budget
support is poverty reduction. This is achieved by resource transfer
that supports the government's poverty reduction strategy (PRS).
3. As general budget support is in most
cases implemented with appropriate technical assistance and policy
dialogue, it also enhances the government's overall capacity to
reduce poverty. This is a result of two processes. First, general
budget support, in the short to medium term, empowers the government
in its relations with donors in a number of ways:
— By increasing government ownership
of policy making and the budgeting process while at the same time
reducing the possibility of undermining processes by a myriad
of donor projects;
— By strengthening Ministries of Finance,
Cabinets and Parliaments in their roles in public resource allocation;
— By strengthening the accountability
of line ministries to the centre of government rather than to
donors; and
— By coordinating behaviour of donors
around the PRSP/partnership agenda.
Secondly, in the longer term, general budget
support should have a positive transformative effect on governance
by, for example:
— Supplying more stable macroeconomic
management;
— Increased government accountability
to its citizens through more effective budget processes;
— Increased allocative efficiency in
public spending; and
— Increased effectiveness of public
administration eg complex cross-cutting institutional reforms
such as civil service pay which affect all parts of government
(an advantage of budget support over sector support).
How does DFID measure these impacts?
4. A key philosophy of budget support is
that it should help governments to improve their own performance
management and budgeting systems; it is therefore important that
donors do not require government to set up parallel reporting
systems for budget support. Therefore, the impact of the resource
transfer of general budget support on poverty reduction (and ultimately
the reaching of the Millennium Development Goals) is measured
through the partner government's own performance management, accountability
and poverty reduction strategy (PRS) monitoring systems.
5. The PRS monitoring mechanisms differ
from country to country as they are tailored to the governments'
own systems. However, DFID recognises that presently many of the
PRS monitoring systems are quite weak and we are working to strengthen
these systems and developing countries' statistical capacity.
DFID is also working through the OECD Development Assistance Committee
towards harmonising donors reporting requirements around the partner
governments' systems.
6. The policy dialogue that DFID's country
offices and other donors have with governments over the budget
support leads to an understanding of strengths and weaknesses
of a government's capacity to reduce poverty and the impact that
general budget support has on this over time. DFID is working
on the development of tools to measure this impact. Our Evaluation
Department has completed a study that looks at the links between
general budget support and achievement of policy, institutional
and governance outcomes using case studies in Uganda, Mozambique
and Andhra Pradesh. It asked questions such as;
— Is the government empowered?
— Is there better donor co-ordination?
— Is there institutional transformation?
7. The results from the Uganda case study
showed greater government control over externally funded activities
and resources; strengthened capacity in the Ministry of Finance,
the Cabinet and Parliament in public resource allocation; budget
allocations reflecting government priorities more closely; coherent
monitoring and review arrangements were in place, and incremental
improvements of the role in democratic accountability of Parliament,
public audit functions and the media. In Mozambique, the enhancement
of donor co-ordination has been clearly shown to be one of the
most important benefits from budget support. In Andhra Pradesh
the Department of Finance's role in initiating reform in the government
has been strengthened.
Future Work
8. DFID plans include:
— Further work on PRS monitoring to
examine methods of using information provided by the PRS monitoring
systems to link more closely to: (a) resource allocation through
the budget process; (b) the way these resources are deployed and
managed; and (c) the outcomes and impact achieved;
— Phase 2 of the Evaluation Department
study that will further develop the framework to measure the impact
of general budget support in co-ordination with other interested
members of the OECD DAC Working Party on Aid Evaluation;
— Further work on the circumstances
under which the continued use of budget support would be suspended
or scaled back. DFID recognises that the freezing or withdrawal
of budget support can have longer term damaging consequences on
economic and social stability of a country that could undermine
poverty reduction. DFID is working to develop consistent principles
and practice that take account of the risks and benefits of withdrawing
support;
— Taking forward the recommendations
of the NAO review of safeguards against the misappropriation and
diversion of aid; and
— Co-ordinating and synthesising the
lessons learned on general budget support and sharing them with
other donors.
25 July 2003
| 
