Select Committee on Public Accounts Thirtieth Report


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 strategies—Uganda, Ghana, Malawi, Tanzania, Rwanda, Kenya and Malawi—and 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 need—for 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 involvement—factors considered crucial in achieving a sustainable impact.

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


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2003
Prepared 3 July 2003