As donors seek to improve the effectiveness of aid, they have turned to delivering aid directly to developing country budgets. General budget support funds are used by recipient governments according to their own priorities. It is too early to tell, however, if this is more effective in reducing poverty than project or sectoral funding.

A study carried out by the University of Birmingham evaluates the impact of general budget support (GBS) by drawing on the experience of seven countries up to 2004: Burkina Faso, Malawi, Mozambique, Nicaragua, Rwanda, Uganda and Vietnam. The study was carried out on behalf of 24 development agencies and the governments of the seven countries.

The origins of GBS are closely linked to the Heavily Indebted Poor Countries initiative and to the introduction of Poverty Reduction Strategy Papers as a focus for collaboration between donor and recipient countries. Donor members of the Organisation for Economic Cooperation and Development now channel about US$5 billion – some five percent of their aid – to the budgets of developing country governments. The UK provides a quarter of its aid directly to governments, but other donors – such as Japan and the USA – fear that money will be wasted unless there is project-level accountability.

Early evidence suggests that GBS boosts a country’s capacity to manage its own affairs. There is no evidence that money that goes directly to government budgets is more affected by corruption than other forms of aid. In fact, GBS makes the flow of assistance more predictable and helps governments map out anti-poverty strategies over the long term. GBS also eliminates the need for overstretched bureaucracies to spend resources on donor requests for reports on individual projects.

In five of the seven countries studied GBS has brought benefits. The exceptions were Nicaragua (where GBS was only just beginning) and Malawi (where failure to control government spending led to the suspension of GBS). But GBS is difficult to manage because of the range of international partners and their interests. Shortcomings include:

• Technical assistance, or the building of local skills and resources, has not been integrated into GBS.
• Donors have been over-optimistic about their ability to influence matters that are rooted in recipient countries’ political systems.
• Recipient government leadership in aid coordination is often limited, as is collaboration in the analytical work international donors base their aid strategies on.
• The definition of what is meant by ‘pro-poor expenditure’ is often broad and superficial.
• The extent to which GBS has reduced transaction costs – administrative and other costs of managing aid – has been limited by the continued existence of conventional aid programmes.

GBS as such is not an anti-poverty strategy – it is a way of delivering aid in support of a country's poverty reduction strategy and can only be as effective as the strategy it supports. The study emphasises that donors need to consider how GBS interacts with other ways of providing aid, and how it can complement them.

Among other things, donors need to:

• fully assess the political risks before directing funds straight to governments
• ensure their demands for reporting and accountability reinforce rather than overshadow mechanisms for national accountability
• collaborate with recipient governments to build public finance management capacity
• ensure global initiatives are integrated with national and sectoral planning
• work with recipient governments to understand the causes and consequences of corruption.

Source(s):
‘Evaluation of General Budget Support: Synthesis Report. A Joint Evaluation of General Budget Support 1994-2004’, International Development Department, University of Birmingham, by IDD and Associates, 2006 (PDF) Full document.

Funded by: Organization for Economic Cooperation and Development; World Bank

id21 Research Highlight: 15 March 2007

Further Information:
Stephen Lister and Rebecca Carter
International Development Department
School of Public Policy
University of Birmingham
Edgbaston
Birmingham B15 2TT, UK

Tel: +44 (0)121 414 5009
Fax: +44 (0)121 414 7995
Contact the contributor: slister@mokoro.co.uk; rcarter@mokoro.co.uk

University of Birmingham, UK

Other related links:
'Improving aid effectiveness in Africa through general budget support'

'General Budget Support speeds up national reform in Tanzania'

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

'Making mutual accountability work – the Paris agenda'

'Aid that works? Multi-donor budgetary support in Ghana'

Eldis Aid and Debt Resource Guide

Poverty Reduction Budget Support: DFID Policy Paper (PDF)