Examination of Witnesses (Questions 20-39)
DEPARTMENT FOR
INTERNATIONAL DEVELOPMENT
3 MARCH 2008
Q20 Mr Touhig: You must have an idea
of how much of your budget never gets to where it is intended
and is siphoned off.
Dr Shafik: We do in some cases
use something called Public Expenditure Tracking Systems where
we actually track the money from the centre to the local level.
We have been able to show in some countries how that has improved
dramatically. In Sierra Leone, for example, when we started in
the health sector only 5% of the money—
Q21 Mr Touhig: I appreciate that,
but how much of your budget do you reckon does not get to where
you intend? How much is siphoned off as a result of corrupt acts?
Dr Shafik: I think as the NAO
Report itself says, it is very difficult to measure because corruption
by definition is hidden. We do try to get a sense of leakage of
funds.
Q22 Mr Touhig: That is what you call
it, is it? Leakage of funds, corruption.
Dr Shafik: It would be wrong to
confuse leakage and corruption; they are quite different things.
Leakage includes things like, for example, in Rwanda they did
not have initial balances after the genocide so we did not have
initial data to work with. Leakage can also include things like
the fact that governments have poor record keeping.
Q23 Mr Touhig: Many of these countries
have poor audit trails; do you recognise that?
Dr Shafik: Yes.
Q24 Mr Touhig: Coming back to the
point, how are you sure that it is getting to where it is intended
and it is not going into the pockets of corrupt officials? You
only have a notional idea of how much is being siphoned off. Was
it in the case of Ethiopia where you had to introduce safeguards
because the government was using the budget provision you had
given them for other things in their own programmes? That is what
the Report tells us, that in Ethiopia initial safeguards were
needed because DFID money was being spent on broader budgetary
programmes other than the ones you intended.
Dr Shafik: We have used safeguards.
When we have doubts and concerns we have a variety of things we
can do to get further assurance. These Public Expenditure Tracking
Surveys are one example of what we can do but we can ask for more.
In Ghana and in Mozambique for example we were concerned about
particular sectors where we were concerned the money was not getting
through and so we asked—at the suggestion of the NAO—for
their own national audit offices to do additional work. In Ghana
we asked for additional audit work on the agriculture sector,
on local government.
Q25 Mr Touhig: What did it tell you?
Dr Shafik: Let me turn to Rachel
who might give a sense of the Mozambique audit where we asked
for additional work in health and on roads.
Ms Turner: We have agreed to add
safeguards to the road sector in that there will be a procurement
plan in roads and every year we will have an ex-post procurement
audit. The road sector has actually been audited for the last
three years and has had totally clean audits. We have also had
value for money audits in the road sector.
Q26 Mr Touhig: That is in Mozambique.
Ms Turner: Yes.
Q27 Mr Touhig: What about in Ethiopia
where the regime became more oppressive and it was using money
you intended for aid projects for their own programmes? What steps
did you take? We are told that you put steps in place to put an
end to this, what did you actually do?
Dr Shafik: We actually cancelled
budget support in Ethiopia and we developed a completely new instrument
which had three different kinds of safeguards. It only allowed
us to disburse money against pre-agreed expenditure, so there
were certain categories of eligible expenditures like teachers'
salaries or road maintenance that would qualify for the use of
our funds. The second thing we did was to introduce random checks
at the local level to make sure that the funds were actually arriving
at the district level. The third thing we did was to fund civil
society in Ethiopia to make sure that the government was not using
the funds for party political purposes and to discriminate against
local communities that had voted for the opposition. Those were
the safeguards we put into place.
Q28 Mr Touhig: It does seem to me
that when you are funding a particular project you can see an
outcome. In response to questions from the Chairman you talked
about helping these countries develop offices and accounting and
so forth, but you do not seem to be following through. You are
saying you are helping the whole of the Ugandan education system
but what is the actual outcome? Are there more schools? More books?
More children being educated and so on? How are you measuring
that?
Dr Shafik: We measure that very
clearly through the use of national statistics. Uganda is a good
example. It is the first country in which we provided budget support
and over the last ten years they have doubled enrolments; they
have doubled the number of children who are immunised for deathly
diseases. Those are pretty tangible outcomes to be honest, and
I think it might have been simpler for us if we had financed a
few schools and a couple of health clinics, but being able to
have that kind of systemic impact on Uganda is far more powerful
than individual projects.
Q29 Mr Touhig: There are cases we
are shown in paragraphs 2.6 and 2.7 in which there has been a
reduction in the quality of services to health and education in
some of the projects you have supported. That is not a desirable
outcome, is it?
Dr Shafik: Let us take the case
of education as a good example. In Ethiopia we have doubled education
levels in just six years.
Q30 Mr Touhig: Who is the "we"?
Britain? You mentioned it had gone up from seven to 14 million
children; that is entirely down to DFID is it?
Dr Shafik: No, absolutely not.
Q31 Mr Touhig: So who is the "we"?
Dr Shafik: The "we"
is the Ethiopian Government with the support of its donors. There
is a huge amount of international evidence that just going to
school has huge social benefits, particularly for girls, both
in terms of reducing future fertility, increasing the likelihood
that they will go into the workforce. Even if they are in large
class sizes there is considerable evidence that there are huge
social benefits—
Q32 Mr Touhig: You do not have to
convince a working class boy from Abersychan on the benefits of
education, I can tell you. The Prime Minister gave a very good
lecture at the catholic cathedral in Edinburgh a couple of years
ago when he said that really what we have to do is to make education
free in a lot of the developing countries because the huge barrier
was where children had to pay. Do you take that into account?
Do you actually aim to try to say to countries that you will give
them aid provided they make education free?
Dr Shafik: Absolutely, and we
have done that both in the education sector and the health sector
in Zambia. We have actually said that our budget support is provided
with the proviso that you will provide free primary education
and also free basic health care services. That is a hugely powerful
factor. In Zambia attendance at health clinics went up by 30%
with the abolition of fees. In country after country—Uganda
is a good example, as is Burundi—the abolition of fees for
primary education often results in a massive increase in enrolments.
Q33 Mr Touhig: The Chairman mentioned
Rwanda where the teacher/pupil ratio had actually worsened and
we also see that there are insufficient textbooks being delivered
and indeed educational spending has decreased in Rwanda and defence
spending has increased. How are you sure that the pot you are
putting in is not going to military needs rather than educational
needs?
Dr Shafik: We monitor total expenditure
and the entire budget. We will look both at the defence budget
and what is happening with that as well as the education and health
budgets. As the NAO Report says, in virtually all the countries
where we provided budget support we can show that the spend on
education and health has gone up both in absolute and, almost
always, in relative terms as well.
Q34 Mr Touhig: Is that a view shared
by the NAO?
Mr Sloan: I think in seven out
of eight countries the work that has been done shows an increase.
The issue in part is whether that is proportionate to the input.
The further issue you were discussing is how much of these increases
in service delivery are down to the budget or down to general
growth, the raising of revenue in the country. It is that question
which we have been wrestling with.[2]
Q35 Mr Touhig: Are you in constant dialogue
with the Department about them funding these projects in a different
way to make sure that they are working closely with the governments
in these countries to ensure that the kinds of outcome that we
want are actually being achieved.
Mr Sloan: Yes, we have had long
and intensive discussions on this Report, but generally it is
part of our monitoring of DFID's financial assistance.
Mr Burr: Yes, it is a feature
of our audited DFID accounts to satisfy ourselves that this money
has not gone astray and has been practically used.
Dr Shafik: It may also be worth
mentioning that at least up until now—touch wood—the
NAO has never qualified our accounts and it does check regularly
whether we are using funds appropriately.
Mr Touhig: As it is your first day you
had better keep hoping they do that.
Q36 Mr Bacon: Dr Shafik, you said
in answer to an earlier question from the Chairman that you did
not have a maximum level of risk so much as look at risks compared
with the benefits. You used the example of Sierra Leone and you
said something about conflict avoidance and that this had a particular
cost attached to it that was greater than all the aid in the world.
Are you saying that the cost of avoiding the conflict in Sierra
Leone was greater than all the aid in the world?
Dr Shafik: No, I was saying that
the economic cost of the average conflict is equivalent to all
global aid in a particular year.
Q37 Mr Bacon: How is the figure for
the average conflict worked out? Do you take the number of conflicts
and divide them by the total costs of all of them?
Dr Shafik: There is economic literature
on conflict now.
Q38 Mr Bacon: Presumably the cost
of the small, local conflict in West Africa is rather different
from the cost of something like the Iraq war where the US were
spending four billion dollars a month five or six years ago. How
does that help? I would have thought that the case that you cited,
Sierra Leone, insofar as these things are cost effective I would
have thought it was a rather cost effective conflict, was it not,
in terms of getting rid of the bad guys and restoring some sanity?
Dr Shafik: Absolutely. The comparator
is: how much was the economic cost of the conflict in Sierra Leone?
It cost billions in terms of infrstructural damage, lives lost
and that kind of thing. The question is whether our budget support,
which was a fairly modest £20 to £30 million, depending
on the year—
Q39 Mr Bacon: What I do not understand
is why is it that budget support is being contrasted with conflict
avoidance when there are many other kinds of aid that could also
contribute to avoiding conflict?
Dr Shafik: That is true, but in
the case of Sierra Leone the government would not have been able
to run without budget support; it could not have met its basic
functions of providing security and paying a minimum amount of
payroll. In that case what we were trying to do—
2 Note from National Audit Office: The NAO
Report (paragraph 2.3) indicates that budget support has led to
absolute growth of "pro-poor" expenditure on services
including health and education in six out of the nine countries
where independent evaluations were commissioned by donors. (In
the three other countries there was insufficient evidence to conclude.)
Of those six countries four had also increased "pro-poor"
expenditure relative to other spending. In seven out of eight
countries budget support has increased the quantity of service
delivery, usually in basic health or education (NAO Report, paragraph
2.5). In the ninth it was too soon to tell. Back
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