Examination of Witnesses (Question Numbers
60-79)
DEPARTMENT FOR
INTERNATIONAL DEVELOPMENT
30 NOVEMBER 2009
Q60 Mr Carswell: So they are identifying
fraud?
Dr Shafik: They are identifying
fraud and they are prosecuting it.
Q61 Mr Carswell: The general budget
support is subject to fraud?
Dr Shafik: Fraud exists in all
countries. The issue is, are you prosecuting and are you addressing
it?
Q62 Mr Carswell: I believe I am right
in saying that the Americans generally do not give general budget
support and my understanding is the reason they do not is because
of accountability. The United States Congress, a proper legislature
that does its job properly, does not like to sign off on what
they regard as a form of subsidy which cannot be accounted for.
Are they wise not to sign off on it? Should we be more challenging
in how our money is being spent?
Dr Shafik: I think if you asked
the General Accounting Officers, they have found widespread fraud
in many parts of the US aid programme that is not related to budget
support. I do not think this instrument is any more vulnerable
to fraud than other aid instruments.
Q63 Mr Carswell: Do we spend money
trying to develop an enhanced democracy in Malawi?
Dr Shafik: Yes, we do.
Q64 Mr Carswell: Democracy is about
competing tax and spend options in a spectrum of public sector
provision. Are we not actually preventing the development of democracy
if we are, in effect, providing a large subsidy that prevents
the government legitimately raising taxation through a local public
policy debate in Malawi?
Dr Shafik: The government of Malawi
gets about a third of its budgets from donors, so two-thirds is
still dependent on Malawian taxpayers to generate it. In addition
to the anti-corruption bureau, we fund the national audit office
in Malawi to generate public information about how money is being
spent, and we are paying for them to expand their audit programme
from 50% of government spending to 80% of government spending.
We fund the parliament. When I met the Speaker of parliament,
I think he is very grateful for the support we give to parliamentary
accountability.
Q65 Mr Carswell: I am sure he is,
but it is not really enhancing democracy if these are not decisions
that are entirely dependent upon the revenue raised. A lot of
debate in democracy is about how to broaden the tax base, whether
you should broaden the tax base. If we are bunging a third of
Malawi's budget to Malawi, this is not going to happen democratically,
is it?
Dr Shafik: Two-thirds is their
own money. Gwen, do you want to add something on that?
Ms Hines: Malawi is increasing
the amount of money every year which is raised through domestic
taxes. They set themselves targets and in the past year they have
easily exceeded those targets, so they are raising more domestic
revenue. It is incredibly important to understand just how poor
Malawi is. When between 80% and 90% of your population are subsistence
farmers who are literally trying to grow enough maize to feed
their family, the prospects for raising enough tax revenue to
replace aid are very limited. As I said, Malawi last year had
9.7% growth and it would take growth of at least that for the
next 10 years to replace aid.
Q66 Mr Carswell: So should we not
cancel general budget support, abolish it, and instead, rather
than spend the money on hand-outs for politicians, which is what
it is, and hand-outs for grandiose planners, give the budget support
money instead to beefed-up programmes that would actually ensure
that rural farmers have things like access to credit? It is a
lack of credit that forces the farmers to forward sell their harvests,
which explains the low productivity. Should we not be addressing
their lack of access to credit? Would we not be better off sorting
out land ownership issues, making sure that every woman and man
in Malawi has access to a mobile telephone, rather than using
this money to subsidise politicians who then siphon off that money,
as you admit, into propping up their own personal property portfolio?
Dr Shafik: I do not recognise
this picture of budget support that you paint, actually, and I
think we are doing precisely that, helping a very, very poor government,
which has £80 to spend per capita per year, target that money
on an essential package of health services recommended by the
WHO as the most effective for saving lives, an essential package
of input subsidies which gives the poorest farmers in Malawi access
to basic inputs.
Mr Sharpe: Perhaps I could just
say three things. Firstly, obviously we want to be sure that the
Malawi government budget is pro-poor. If we support budget support
in countries, which we do in 15 countries out of the countries
in which we work, it is because we believe that they have a fundamentally
pro-poor budget. In Malawi they spend 20% on health and 19% on
education so it is good proportions of the budget that go on pro-poor
issues. In terms of strengthening democracy, one of the key things
it does is to strengthen the information base to citizens. It
is because donors have been involved with public accountability
systems in these countries that we now have much more transparent
budgets, that there are medium-term expenditure plans, that we
have supported the accountability mechanisms so that the accounts
are published now and they are audited. Involvement with these
systems does help strengthen them. The third thing is just to
note that when you do compare unit cost, as you were asking us
to do earlier, the unit cost advantages that we get from constructing
schools through government systems rather than sending in external
contractors to do it are enormous. We have to assess the costs
and the benefits of the different aid modalities.
Dr Shafik: Just to give you one
small example, if I may. We have looked at our entire education
portfolio in DFID, much of which is channelled through budget
support. We can get a child into school for £60 a year. That
is 2% of the UK cost. We are paying for five million children
to go to primary schools around the world.
Q67 Mr Carswell: In 2004 you had
to suspend budget support because of the theft and the kleptocracy.
What is it that has changed other than a more malleable set of
politicians to make you resume budget support?
Mr Sharpe: One of the things that
has definitely changed is the improvement in the public financial
management system. In 2005 in the PEFA (Public Expenditure and
Financial Accountability) international assessment, of the 28
indicators Malawi scored a D on 21 of them. In 2008 when they
did it again it scored a D on four of them, so it has improved
a lot over that period, but I should leave it to the experts in
the country to comment more.
Ms Hines: I would also point out
there was an election in the meantime and it was a fundamentally
different government which has been bought in. The previous President
is currently being investigated by the Anti-Corruption Bureau
of Malawi for that period. If you look just at the economic indicators
and how they changed between 2004 and 2008, something our budget
support helped to achieve was macroeconomic stability. Inflation
was 20% in 2004 and 8% in 2008.
Q68 Mr Carswell: In five years' time
will we still have general budget support, do you think?
Dr Shafik: In Malawi?
Q69 Mr Carswell: Yes.
Dr Shafik: Probably yes and I
do not think that is a failure; I think that would be a sign that
we had confidence in their systems and they had good policies
and we were willing to support them.
Q70 Chairman: Dr Shafik, you believe
that budget support or aid to government is no more liable to
fraud than other types of aid, microaid for instance rather than
macroaid? That is your belief, is it?
Dr Shafik: That is what my head
of internal audit tells me.
Chairman: That is what you told Mr Carswell
and I just wanted to double check. Geraldine Smith?
Q71 Geraldine Smith: It is a very
difficult job obviously in a very, very poor country and £80
million is not that much money. Is there a danger sometimes you
can try and spread it too thinly and try and do too much?
Dr Shafik: It is something we
always struggle with and I think Gwen will give you a feel for
this. In a country that has so many needs we could be doing everything.
In fact, we have tried to focus on what Malawians say are their
top priorities. The first was food security, for obvious reasons
because that is what matters most to poor households, and the
second was health. Those have been the two major sectors which
the NAO has looked at. It does not give you a long-term development
strategy and the shortfalls and the shortcomings in education
in Malawi are good examples of something we would like to do more
in but cannot. Gwen, do you want to say something about how you
make those trade-offs?
Ms Hines: It is very difficult
especially in a country like Malawi, as Minouche has said, and
despite the needs in Malawi there are actually very few large
donors in Malawi. There are four or five who provide very much
the bulk of the aid, both through budget support and through their
individual project support. DFID is the largest bilateral donor
in Malawi so we are routinely looked for, not just for our money
but for the analysis. My staff are routinely the ones who are
asked, "Who has done the budget analysis? Who has done the
study on the impact of the financial crisis?" DFID is almost
always the first donor to do that kind of analysis in Malawi and
it is something the government looks at a lot. They talk to me
a lot, ministers talk to me a lot to say, "We have got this
problem; how do we deal with this?" We have an agreed division
of labour amongst the donors. We and the other major development
partners do support the Malawi government's own strategy called
the Malawi Growth and Development Strategy and that is a framework
for their own spending and for our spending. Within that when
we do our own country assistance plans and country strategies
we focus on where as DFID we can add most value, so, for example,
there is an explicit understanding with the World Bank and with
others such as the European Commission that DFID will focus on
health and education. We are about 40% of donor funding in both
those sectors. The World Bank on the other hand very much leads
on issues like energy, which DFID is not set up to lead on, and
they can bring a lot of other expertise to it.
Q72 Geraldine Smith: Can I ask something
on health. One thing that jumps out is the figure of £1.2
million to treat 15 patients abroad. What happened there? What
was that all about?
Dr Shafik: Those are some very
difficult cases. The majority of those cases are cases of cancer
and they are mainly children who have cancer. We asked the Ministry
of Health to give us numbers on the wealth quintiles of where
those families came from to see if there was any bias in favour
of wealthier families, and that was not the case. The proposals
for treatment abroad come from public hospitals based on clinical
criteria recommended by doctors who chair those committees. The
Malawi government has tried its best to reduce those costs so
over time they have come down by about 30% or 40% because they
have an agreement with a hospital in South Africa which treats
children's cancer cases. The alternative would be for Malawi to
try and treat people at home, but of course the costs of that
would be prohibitive given how poor the country is. Neighbouring
Zambia has built a cancer hospital recently. It cost $10 million
to construct and $4.8 million to maintain. It runs chronically
under capacity with a lack of staff and supplies.
Q73 Geraldine Smith: It is very hard.
I know it is awful when you are talking about people's lives,
but it is terrible when you look at the maternal mortality rates
and things that they are so high and the fact that people do not
have any transport to take them to hospitals, any ambulances or
anything like that. Surely, there has got to be a certain amount
of health rationing in effect to make the most use of funding?
How do you do that? What systems do you have in place to make
sure that the money is spent to save as many lives as possible?
Dr Shafik: In some ways, thankfully,
we do not have to make these choices; doctors in Malawi have to
make those trade-offs. Obviously this is a very, very, very tiny
proportion of the health budget, so it is something that we have
to defer to the doctors' judgment about who can benefit most from
treatment. Our primary concern though is whether the entire health
budget is being focused on maximum benefit. I think there the
NAO confirms that the essential health package, which is what
we are supporting, is the highest possible return investment we
could be making in health.
Q74 Geraldine Smith: What about the
basics such as clean water? There seems to be some dispute in
the Report about just how many people do have access to clean
water. That is surely the first essential thing that you need?
Dr Shafik: Absolutely. Malawi
has done relatively well on providing access to water. It has
gone up from 40% to 65% since 1990.
Q75 Geraldine Smith: Has that figure
not been disputed? Do WaterAid not dispute that figure of 65%?
Dr Shafik: That is correct. WaterAid's
comment that 31% do not work relates to an earlier government
number which I think most of us thought was an overestimate. We
think these newer numbers are much more reliable. You are quite
right; access to water is a basic. When I was there visiting we
visited a village which had a water borehole put in place and
it was the shiniest thing in the village. It was an incredible
source of pride to the whole community and had transformed health
indicators in that community, so it is a huge issue.
Q76 Geraldine Smith: Can I go back
to the staffing numbers that was touched on earlier. It does seem
that if you had over 100 staff in 2004 and it has gone down to
below 40 at one point, that is a very big reduction. Are you saying
you were overstaffed to begin with?
Dr Shafik: Malawi was staffed
somewhat unusually relative to other offices because there were
many things that in normal offices we would contract out like
estates and taking care of buildings and that kind of thing, which
were done in-house in Malawi and which because we wanted to reduce
numbers we were able to contract out and reduce our core numbers.
I think the current staffing numbers in Malawi are quite normal
for a typical DFID office in an African country.
Ms Hines: I was just going to
add as the person who has got that team to achieve the work that
we are trying to achieve, that I am confident that we have the
right staffing numbers now. It is not just about numbers; we have
also changed the skills profile of the staff. A lot of those we
have lost were very junior staff who did functions which are no
longer required. We now have a computerised financial management
system and record-keeping systems so we no longer need the people
who in the past performed those kinds of functions manually. We
also had a school construction unit which was previously part
of DFID. As part of our aid effectiveness that unit is now part
of government. It is also being merged as we speak with an African
Development Bank unit so the government will control school construction
in the future as part of a harmonised unit. That was also downsized
as part of the transfer of aid into government but that explains
for example why a certain number of posts were removed in DFID
Malawi. We also have a lot more Malawian staff rather than international
staff. Those staff have a huge amount to offer. They have quite
different skills than I have or my other British staff have and
that enables us also to balance our running costs. We all bring
different things. I now have a very good team who can achieve
what they need to achieve.
Geraldine Smith: Thank you.
Q77 Mr Mitchell: I see that 1.4 says
that DFID aligns its work with the other donors, but we are told
elsewhere that more and more of the money DFID channels in is
going through the government in Malawi. Is that efficient?
Dr Shafik: We think it is efficient
because the cost of the Malawian government delivering health
and education services would be far less than if we brought in
external parties and tried to—
Q78 Mr Mitchell: Surely it is much
more subject to corruption and political influence?
Dr Shafik: We think the way to
mitigate that risk is to invest in the Anti-Corruption Bureau
and try to make sure that public financial management is improving
in its quality.
Q79 Mr Mitchell: Are you transferring
more functions to their government rather than having it done
through your staff because you have got to reduce staff levels?
Dr Shafik: No we are not doing
it to reduce staffing. It is because we think it is more cost-effective
and more sustainable in the long run if the Malawian government
runs these programmes themselves rather than us doing it.
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