2. Managing the risks involved in the
provision of aid
11. The Department is committed to shifting the delivery
of aid from funding discrete projects to making greater use of
budget support. Budget support involves the provision of aid directly
into the national budget of the partner government in support
of the implementation of an agreed poverty reduction strategy.
The Department, along with much of the donor community, believes
that budget support offers the potential to improve the effectiveness
of aid. The rationale is that progress towards the achievement
of poverty targets is more likely to be made by assisting partner
governments to implement long-term poverty reduction programmes.[35]
The aim is to develop the capacity of institutions to deliver
sustainable public services and to strengthen government systems
to disburse funds more effectively.[36]
In 2001-02, the Department provided some £290 million
through budget support, approximately 18% of its bilateral aid
programme.
12. Whilst there are potential benefits, there are
also risks because the Department is not directly responsible
for the actual use of funds after they have been disbursed into
partner government budgets.[37]
So it is important that the use of budget support is backed up
by the provision of appropriate technical assistance. The Department
has worked closely with the National Audit Office to develop its
approach to addressing the risks inherent in budget support and
has implemented a range of initiatives to safeguard and provide
feedback on the use of UK funds.[38]
A key element of the Department's approach is to build up the
human resource capacity in developing countries by transferring
knowledge from its advisers to developing country administrations.[39]
These initiatives are tailored to individual country circumstances
and include the following examples.
- Government financial management systems are strengthened
by, for example, providing training to civil servants.[40]
The Department has supplemented the use of budget support by building
the capacity of national institutions in poor countries.[41]
- Public and parliamentary accountability arrangements
are supported to enable better and more timely feedback on the
use of funds. For example, in Ghana and Indonesia, the Department
is strengthening committees equivalent to the Committee of Public
Accounts and providing advice on how the system work in the United
Kingdom.[42]
- Expenditure-tracking studies are used to provide
assurance that funds are being used in accordance with poverty
priorities.[43]
- Enforcement capacity in developing countries
is strengthened by, for example, providing anti-corruption agencies
with appropriate legislation and resources to catch and prosecute
people mis-using public funds.[44]
13. The increasing use of budget support by other
bilateral and multilateral donors offers the opportunity for the
harmonisation of donor practices by, for example, the development
of a single reporting system. There are benefits for the host
government too in terms of reducing the burden of meeting numerous
donor reporting regimes. The Department has worked with host governments
to develop their reporting systems and is making progress with
other donors on developing a common international set of reporting
requirements.[45]
Donors have their own accountability requirements, however, and
have so far insisted on the separate collection of data. The National
Audit Office is also working with other donors' auditors to develop
a common methodology for auditing budget support arrangements.[46]
14. In developing countries, poverty reduction strategies
are key documents in setting poverty objectives and prioritising
national budget allocations.[47]
They are established by host governments, often following wide
consultation within the country on the poverty priorities. But
the quality of poverty reduction strategies varies, and the worst
have priorities set centrally with no buy-in from the population.[48]
There is evidence that poverty reduction strategies have not always
reflected fully the water needs of developing countries. Analysis
of a sample of seven strategies showed that there are a number
of risks to the achievement of improved water and sanitation access
and, in many respects, the proposed approaches are not consistent
with good practice (Figure 3).[49]
Most of these countries are in a stage of development where they
consider water to be a lower priority than health and education.[50]
The Department, as part of the wider international donor community,
liaises with the host government on its national poverty objectives
and targets when agreeing to the provision of budget support.
It seeks to influence host governments to focus on poverty needs
and,[51]
as necessary, will seek to challenge decisions made.[52]
15. The use of budget support changes the nature
of donor involvement in developing countries and has consequent
resource implications. For example, there is an increased need
to engage in higher-level policy dialogue with governments.[53]
The Department needs to balance the new resource requirements
with the retention of appropriate expertise in order to provide
sufficient knowledge of country needs and to enable an informed
dialogue with the national government.[54]
There is also a role for civil society in ensuring the needs
of sub-groups are considered by national governments and the Department
seeks to ensure appropriate consultation and consideration of
the full range of poverty needs in the establishment of national
priorities.[55]
Figure 3: Risks to the achievement of improved
water and sanitation coverage
The National Audit Office reviewed seven poverty reduction strategiesUganda, Ghana, Malawi, Tanzania, Rwanda, Kenya and Malawiand drew upon research conducted by Water Aid. This identified the following concerns over the role of water in poverty reduction strategies:
- funding allocations to the water sector not increasing;
- geographic focus is not in the areas of greatest needfor example, funds earmarked for urban areas where the majority of needy live in rural areas;
- insufficient attention to sanitation issues;
- insufficient attention to water resource management issues; and
- a lack of attention to maintenance needs and community involvementfactors considered crucial in achieving a sustainable impact.
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Source: C&AG's Report: Department for International Development:
Maximising Impact in the Water Sector (HC 351, Session 2002-03),
Figure 16
16. The lack of capacity in local government to spend resources
effectively is a key risk factor in delivering better public services
in developing countries. Many developing countries have decentralised
government structures and, in the water sector, responsibility
for service delivery is devolved to local levels of government.
There is a greater risk of a lack of human resource skills in
local government and, further, capacity to deliver services is
generally weakest in the poorest areas of the country, where lack
of access to water is likely to be most acute.[56]
Strengthening the capacity of governments to deliver better public
services is one of the objectives of budget support. To date,
the Department's capacity building role has predominantly been
directed towards central government (see paragraph 12) and less
attention has been given to addressing weaknesses at lower levels
of government to improve their ability to manage funds and deliver
services.[57]
17. Monitoring and evaluation play a key role in ensuring that
aid provided via budget support is being used for the intended
purposes of poverty reduction.[58]
The nature of budget support means that it is not possible to
monitor in detail how funds have been spent. The Department seeks
to meet its accountability requirements in three ways. First,
the provision of budget support is conditional upon an agreement
with the country that it is committed to the right policies and
poverty reduction targets. Second, systems and people are put
in place to provide reasonable assurance over the use of funds,[59]
and a number of the measures outlined in paragraph 12 are intended
to strengthen the government's financial management systems and
provide feedback on the use of funds. Third, the Department monitors
the government's on-going commitment to poverty issues and there
have been instances in which this has led to the suspension of
budget support. For example, in 2000 the Kenya government's lack
of commitment to its agreed reform programme led to a suspension
of funding, prompted by a lack of progress in strengthening corruption
legislation and creating an independent anti-corruption body.[60]
The new government in Kenya now offers the opportunity for renewed
dialogue and the possibility of renewing budget support if the
necessary commitments are provided.[61]
18. The Department may choose not to provide aid in a country,
or region, if it considers that the risks of misuse are too high.
For example, the Department decided against funding a waste-water
scheme in Uttar Pradesh in India because of the unwillingness
of the local government to put in place the necessary safeguards
or address institutional problems surrounding the project's management.[62]
The Department undertakes a risk appraisal as part of the project
design.[63] Budget support
submissions include an assessment of risks although there is scope
for a more rigorous and systematic risk appraisal. The on-going
provision of budget support is dependent upon the country's achievements
against a range of outcome-based poverty indicators. The Department
is working with partner governments and the international development
community in developing countries to ensure the availability of
reliable and timely performance information to measure progress
against these indicators.[64]
35 C&AG's Report, para 1.23 Back
36
Q 47 Back
37
C&AG's Report, para 1.23 Back
38
Q 57 Back
39
Q 9 Back
40
Q 75 Back
41
Q 19 Back
42
Q 10 Back
43
C&AG's Report, para 11 Back
44
Qq 9, 75 Back
45
Q 57 Back
46
Q 47 Back
47
C&AG's Report, para 1.30 Back
48
Q 68 Back
49
Q 26; C&AG's Report, para 1.30 Back
50
Q 16 Back
51
Q 37 Back
52
Q 69 Back
53
C&AG's Report, para 1.33 Back
54
Q 58 Back
55
Q 69 Back
56
Q 18; C&AG's Report, para 1.31 Back
57
C&AG's Report, para 1.31 Back
58
ibid, para 1.37 Back
59
Q 48 Back
60
Q 71 Back
61
Q 72 Back
62
Q 59 Back
63
C&AG's Report, para 1.16 Back
64
ibid, para 1.37 Back
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