Donors have promised significant increases in aid to developing countries, and proposed different ways to enhance its effectiveness. General budget support, accompanied by public financial management reforms, is central to the new approach. But aid effectiveness depends crucially on a better understanding of institutional change within recipient countries, and of donors' role in promoting it.

An article from the Overseas Development Institute, UK, surveys the literature on improving aid effectiveness, focusing on General Budget Support (GBS). By providing direct support to developing country budgets, GBS aims to allow governments determine aid priorities themselves, reduce the costs of fragmented, project-based aid delivery, and strengthen domestic accountability of aid use.

As more resources are channeled to developing countries, and increasingly in ways that are supposedly more compatible with national systems and procedures such as GBS, budget processes become more important. Donors therefore view Public Financial Management (PFM) reforms to strengthen budget systems as crucial to the success of GBS.

There is little evidence to support increasing aid through GBS. However, GBS now amounts to about US$5 billion a year (about 5 percent of total Overseas Development Assistance), much of it to African countries. Recent assessments of GBS programmes and PFM reforms highlight a number of obstacles to their success:

• GBS programmes may lead to macroeconomic stability, growth in government spending and an expansion of social services, but underlying political realities may be unchanged: in Tanzania, GBS did not lead to improved efficiency of public spending or accountability.
• Often, the introduction of GBS has not been accompanied by a reduction in the use of other aid delivery systems, undermining some of its potential benefits.
• Recipient governments have limited capacity to manage complex, technical processes such as PFM reforms.
• Donors favour approaches that introduce several reforms simultaneously without paying enough attention to their political and technical feasibility.
• Donors have not fully understood the different factors behind recipient government willingness to undertake reforms: GBS success relies on the existence of a domestic movement for reforms.

The corrupt nature of the political systems in developing countries is often blamed for the failure of aid programmes. But other institutions also play important roles:

• Donors should understand how recipient governments behave, and the potential impact of their own actions on domestic politics.
• Donors supporting GBS have tended to support governments in power, overlooking the importance of strengthening domestic accountability institutions, even undermining them by taking over their functions.
• Supporters of parliamentary monitoring of budget processes need to understand the institutional and political context, along with the motivations of the individual legislators.
• Supreme audit institutions that check government accounts face many limitations, and need a supportive environment, including good relationships with the finance ministry and the international auditing community.
• Civil society can pressure government to improve budget implementation, as the Uganda Debt Network has, and provide access to budget information.

Source(s):
'Aid, Budgets and Accountability: A Survey Article', Development Policy Review, Vol.24, No.6, pages 627-645, by Paolo de Renzio, 2006
Free online access to this article for HINARI subscribers Full document.

id21 Research Highlight: 9 March 2007

Further Information:
Paolo de Renzio
Overseas Development Institute
111 Westminster Bridge Road
London SE1 7JD, UK

Tel: +44 (0)20 7922 0300
Fax: +44 (0)20 7922 0399
Contact the contributor: p.derenzio@odi.org.uk

Overseas Development Institute, UK

Other related links:
'More donors, less help: the cost of receiving aid'

'Mozambique: test case for coordinating effective aid practices?'

'Making mutual accountability work – the Paris agenda'

Eldis Aid and Debt Resource Guide

More ODI Budget Support Resources

Eurodad Report on the Paris High Level Forum on Aid Effectiveness

World Bank Aid Effectiveness Research