Examination of Witnesses (Questions 100-119)
DEPARTMENT FOR
INTERNATIONAL DEVELOPMENT
3 MARCH 2008
Q100 Mr Dunne: Dr Shafik, you have
identified the vast array of choices that you have in your Department
of how to spend your limited resource and I would like to get
into that a bit further. You have increased steadily the proportion
of funding going into budget support and yet your decision making
as to how you decide which countries benefit from that does not
come out clearly in this Report as being something which is an
established procedure. It appears to be somewhat haphazard, if
I can put it like that. If you look at table three, if I have
read this properly, it seems as though you are giving £16
million to India for budgetary support, a nation which undoubtedly
has significant poverty problems but is also producing ten times
as many chemistry PhDs as this country and it has an economy growing
at three to four times the rate of this country each year. Likewise
Pakistan is receiving £52 million; it is not as advanced
economically but still in the emerging nations rather than the
most poorly developed. Also Vietnam, a country whose economic
growth rate is even higher than India's, is receiving £34
million in budget support. Why is it? On what criteria are you
selecting those countries as opposed to many others that would
be lower down the league table of established government procedures
and so on?
Dr Shafik: Let me give a rationale
for each of those countries and then make a more general point.
In the case of India what we are doing is supporting selected
national programmes which target some of the poorest communities
in some of the poorest parts of India which have poverty levels
which are African, to be frank. Pakistan is a very deceptive country
because its per capita income is actually relatively high but
its social indicators are often at levels which would be considered
African. Only 52% of children in Pakistan are in primary school
and that is a huge issue for us for many reasons, including concerns
about terrorism. Vietnam is actually an incredibly poor country.
It is growing fast but its poverty levels are very, very high.
I think in each case we do have to look at the issue in the round
and we also see budget support as one of many instruments that
we look at. In a country like Pakistan or Vietnam we may be doing
general budget support but we may also want to intervene at a
sectoral level where we see that some social indicators are particularly
problematic.
Q101 Mr Dunne: What criteria are
you using? As you said earlier, you have 120 countries and only
15 are getting budget support. Where are the criteria? Why do
we not have here in any of these appendices a clear set of parameters
that you are using to judge whether to supply budget support or
not?
Dr Shafik: The main criterion
is whether we think the potential benefits of using this instrument
are worth the risks involved. That is the underpinning for all
of these choices.
Q102 Mr Dunne: It is not to do with
the power of advocacy of the individual country managers who are
arguing their case more forcefully than others.
Dr Shafik: I do not think so,
no.
Q103 Mr Dunne: So how would you decide,
for example, that one country should have a ten year partnership?
You have decided Mozambique should not get this for seemingly
sensible reasons, but did you consider a 10 year agreement two
years ago when the election was further away? How do you assess
whether the neighbouring countries should get a long standing
agreement or not? Again it appears from the Report that there
is quite a lot of inertia. Once you have got a programme up and
running then your prospects of getting it renewed are probably
rather higher than another country which is not yet on the programme.
Dr Shafik: I can give you three
or four countries where some of our country heads have argued
that budget support would be useful as an instrument and we have
said no. To give specific examples, Kenya, DRC, Nigeria are all
countries where we judged that the risks were not worth the benefits
and that we could use other aid instruments and achieve significant
development outcomes and not have to take the risks that budget
support would entail.
Q104 Mr Dunne: Do you accept the
tenor of this line of questioning, that there is not a clearly
articulated set of criteria for budget support and there should
be within the Department.
Mr Sharpe: I would just like to
clarify that we do take two decisions separately in sequence.
One is allocations to countries where ministers will decide on
the basis of an aid allocation model what they think is the right
amount of aid to go to that country in terms of its poverty and
in terms of its governance record and so on. Then there is a separate
set of decisions which ministers take about the choice of instruments
within that country. I thought it might be useful to clarify that
that those are treated as separate decisions.
Q105 Mr Dunne: Can I move to one
of the issues that Mr Davidson was raising which is to do with
improving accountability within countries? If you look at page
17, paragraph 3.5, the NAO say that it is difficult to obtain
evidence that the impact of strengthened systems on the quality
of public finance outcomes and specifically they say there is
no evidence between 2000 and 2005 that among your 25 priority
countries those which received DFID's budget support had on average
performed at the same levels as those which did not. There is
little evidence that your work to improve public institutions
and accountability within these countries is actually helping
to reduce leakage (if that is the current buzz word for corruption).
Dr Shafik: This data is very difficult
and the trends are very difficult. If, for example, you took a
different time period and looked at some of the World Bank governance
indicators and corruption indicators and took a slightly longer
time period you would find there are more cases that have improved
than have not improved. The numbers move around depending on the
indicators you use and a lot of these are aggregate indicators
based on ten or 15 different indices. I think one could have a
dispute about some of the specifics on the indicators. The NAO
itself does say that there is independent evaluation evidence
and boxes 11, 12 and 13 give examples across a wide range of countries,
as does appendix seven which gives trajectories and shows that
most of them are improving.
Q106 Mr Dunne: I think it is a fairly
mixed picture coming out of this Report, to be honest.
Mr Sharpe: I wonder if I could
just say that if you look at some of the things that are actually
happening as part of public financial management reform—improving
tax collection, making much more procurement open to competition,
getting proper computerised payroll systems to get rid of ghost
workers—it is quite hard to believe that that is not reducing
the scope for the space for corruption in countries.
Dr Shafik: I could ask Rachel
to give us some examples from Mozambique of these kinds of things.
Corruption is a very big word but when you actually look at it,
where does corruption come from? It is usually around procurement
and misuse of the payroll. Rachel, maybe you could give some examples
of those two places where things have improved in Mozambique.
Ms Turner: Mozambique is a good
example because we have had two of these things that Sam described
earlier, these assessments of public expenditure financial management
quality which are very detailed scrutinies of the whole process
and the whole system using international methodology to rank and
score each part of the system, including the raising of tax which
of course is important, as is public expenditure. In Mozambique
we have just had an assessment which is showing a near 20% improvement
over the last one two years ago in terms of the quality of public
financial management systems. Mozambique has been through a very
intensive process of public financial management reform with a
new legal framework and introducing a new electronic management
system. Payroll is also interesting. What they have done with
the payroll—which is 30% of the budget—is that they
have had an independent census of all the public sector. Everyone
has been fingerprinted and you now have to prove every year that
you are alive if you are a civil servant and that has to be notarised.
You have to have notarised proof that you are alive because, as
you know, in Africa there is often a problem with ghost workers.
Payrolls will be on this electronic management system, they are
going to be audited regularly and the system has become extremely
tight; the payrolls have been collapsed into only 12 for the whole
public sector. That is an example where it takes time to do that
kind of work, to do a census, and we have supported that ourselves,
we have put a lot of support directly into that process. It takes
time to build these things, but you can really start to narrow
the space. Similarly in procurement we have had a new procurement
law and introduced a new procurement process. Last year 85% of
contracts were tendered competitively in the public sector. You
can really see that the space begins to narrow.
Q107 Mr Dunne: The DWP might like
to get a note from you on how to introduce such measures to reduce
benefit fraud. In the case of Mozambique could you tell me whether
you have secured an agreement from the public authorities to go
in and inspect the use of funds post the event?
Ms Turner: We have an agreement
that every year there will be a value for money audit in a different
sector. The system in Mozambique is not very familiar to our kind
of system here in the UK, it is done by something called the Internal
Audit Authority that belongs to the Ministry of Finance. They
do value for money audits and they do a different sector every
year. We see that audit and we talk about the results. At the
same time, in some sectors, we have also agreed that the External
Audit Authority that is more like the NAO will do what is called
audit work and we will agree the terms of reference of that. We
have a lot of access to both design and type of audit, to see
it early in the process and to talk about it.
Q108 Mr Dunne: Dr Shafik, one of
the things that comes out of the Report at page 31 paragraph 5.14
is that again there is a very "mixed picture"—to
use the NAO's words—on how successful you are at securing
agreement from donee governments for your Department to go in
and check how the money has been spent and it would seem that
that, particularly in the area of budget support, should be a
principle which applies in every case. Can you explain why it
does not apply in every case?
Dr Shafik: We have issued new
guidance to our teams that they need to do a better job at getting
value from these audits and be more proactive. I think the new
guidance which we issued last month will hopefully respond to
the NAO's view that progress has been mixed.
Q109 Mr Dunne: You have not issued
guidance—or perhaps you have done it last month since the
Report was published—following the 2006 White Paper recommendations
in paragraph 6.18, as to how your country teams should consider
introducing budget support and the appraisal process. Is that
what you are referring to? Have you now done that?
Dr Shafik: Yes, we have.
Q110 Mr Dunne: So the NAO Report
was helpful in encouraging you to introduce some new systems.
Dr Shafik: Yes, very helpful,
both on quantifying benefits, on fiduciary risk assessments and
more broadly on budget support we have issued new policies on
all three of those. The interaction with the NAO has been a tough
process but I think it has been a very useful one for us.
Q111 Nigel Griffiths: What this Report
summarises is that the budget support that you have given has
enabled partner governments to increase expenditure on priority
areas, it has resulted in them providing more services, particularly
in education and in health; it has helped increase the capacity
which is important to deliver the services; it has helped them
strengthen their financial management systems and encouraged other
donors to adopt that sort of policy. In summary it says that DFID
has done a good job in moving public financial management up the
development agenda, it has taken a lead role in developing and
using tools to assess the quality of developing country systems
and to assess the levels of fiduciary risks. How did we manage
before DFID existed?
Dr Shafik: The truth is that we
used to provide something called programme aid before we had budget
support. To be honest, there were elements of it which were a
legacy of the colonial relationships where we would provide direct
support to their budget but we did not hold them to account in
terms of outcomes, poverty reduction and benefits. One can think
of budget support as an evolution from that origin of providing
direct support to government budgets but with much more rigour
around holding to account in terms of audit, accounting and so
on but also in terms of results that we expect.
Q112 Nigel Griffiths: Do you get
satisfaction out of the fact that DFID's aid is now divorced from
arms sale and UK exports? How has that helped us and helped the
developing countries?
Dr Shafik: I think it has been
hugely important for the UK as a whole. To be frank, it has meant
that the independent reviews of DFID that have been done globally
have identified us as the most successful bilateral development
agency in the world. I think the fact that it is de-linked from
anything but the objective to reduce poverty in the world has
been a key factor in our international reputation.
Q113 Nigel Griffiths: I visited India
with your predecessor and saw the wonderful work that was being
done in education so I am slightly concerned to read on page 52
that, perhaps understandably, you are going to have to scale back
your contributions as the wealth of India grows. How are you managing
that process with the Indian Government?
Dr Shafik: We have had some initial
conversations with the Indian Government to look at our programme
evolving to focus increasingly on two of the poorest states in
India—UP and Bihar—over time and we will focus our
efforts there in the medium term. We are also looking to work
with the Indians more globally on international issues as they
become a major international player, so we would talk with them
about climate change, the international trade round, their role
as a regional player in South Asia. The nature of the relationship
will change but I think the Indians welcome that.
Q114 Nigel Griffiths: The Report
on the same page touches on the problems of DFID not having access
to the World Bank's assessments in India and the Report says that
you will now strengthen the financial management control by applying
full risk assessment procedures et cetera for new programmes.
Has that begun and how advanced is it?
Dr Shafik: That has begun; we
have raised that issue with the highest levels of the World Bank.
There was a change of personnel in India which has resulted in
much higher levels of cooperation and we now have access to all
the information we need.
Q115 Nigel Griffiths: I also visited
Vietnam which I see appears in the appendix five examples and
saw some of the education and other projects, including the ground
breaking malaria one that Dr Jeremy Farrar and his colleagues
have in Ho Chi Minh City. In fact I am meeting the Prime Minister
of Vietnam on Wednesday. What message should I give him from DFID
because that seems to be one of the most successful of our partner
countries?
Dr Shafik: Vietnam has been the
country that has been the most successful in the world at reducing
poverty in terms of the pace of poverty reduction. They have been
even more successful than China in terms of the number of people
they are taking out of poverty every year. I think congratulations
are in order.
Q116 Nigel Griffiths: How do you
engage with the vile regimes like Mugabe's and Darfur? How do
you reach civil society when they have driven out NGOs?
Dr Shafik: Zimbabwe is a very
good example because it is the antithesis of budget support. It
is a country where we do not put a penny through the government
budget because we have no confidence in their systems nor in their
commitment to reducing poverty. We have actually not cut our aid
programme to Zimbabwe throughout this period because poverty levels
have gone up, but we have put all of our money through either
UN agencies or NGOs operating in Zimbabwe. Our judgment is that
that is a much safer and better use of DFID funds to achieve poverty
reduction because frankly we do not trust the government.
Q117 Nigel Griffiths: What aspects
of this Report were you most concerned about and what are your
priorities for addressing those concerns?
Dr Shafik: I think the main thing
I was concerned about was the fact that there were weaknesses.
We were often doing the work, doing the analyses and doing the
assessments but we did not do them in a systematic way; they were
not all in one place; the records were not particularly good.
I think there is a consistency and clean up job that we need to
do and I think the NAO has been very useful in terms of helping
us on that. I am a bit of a numbers junkie and I think more effort
on quantification, quantifying benefits, quantifying risks, quantifying
costs and that sort of thing; that is something I hope to take
forward in the years ahead.
Q118 Nigel Griffiths: There are 26
recommendations, which are going to be the most challenging ones
to address?
Dr Shafik: We still need to go
through these recommendations in detail and we are obviously looking
forward to seeing the recommendations from the PAC so I probably
will not respond on individual ones. I think broadly speaking
DFID is a pretty disciplined organisation; our country offices
are far away but they are pretty clear about what we expect from
them. I am not so worried about getting our documentation sorted.
I think quantification implies some culture change in the organisation,
getting people much more used to thinking about quantification
and thinking of themselves as investors in poverty reduction.
We need to make sure that every pound we spend is getting maximum
impact in terms of reducing poverty in the world and thinking
about that in the way a banker would in maximumising rates of
return, these are just not financial rates of return. I think
that will require some culture change in the organisation which
will be challenging.
Q119 Nigel Griffiths: I am very impressed
with you and your team and I look forward to great achievements
from you.
Dr Shafik: Thank you very much.
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