Is donor aid fuelling corruption?
Dec 01, 2009
ANALYSIS<br><br>Eliminating corruption is one of the conditions donors have set for Uganda.
ANALYSIS
By Shamilla Kara
Eliminating corruption is one of the conditions donors have set for Uganda.
Considering the size of the nest Uganda has made for corruption and the not-easy-to-efface situation it comes with, will the conditions effect a change within the given timeframe?
Corruption has shot up in recent years, with the increase in budget support aid to Uganda.
It is timely to evaluate the relationship between corruption and the budget approach (conditionality), and what lies ahead in the aid provision sector.
Budget support refers to aid channelled directly to the recipient government’s own financial management system.
This form of aid delivery supports poverty reduction (promoting pro-poor growth) and encourages the ownership of the development process by the recipient country, while imposing conditions on how to allocate resources.
With its characteristic of channelling money without earmarking a specific project, budget support increases the discretion of government officials in allocating funds, potentially increasing corruption in countries where sanctioning of officials is weak.
Experts argue that budget support is not suitable for governments that do not have sound financial management systems in place; for the reason that this kind of aid delivery attracts uncertainty that funds will not be properly accounted for or used for intended purposes.
Also, because of the ability to switch donor resources to other purposes other than the intended ones, this makes it hard to tell where the donor money will head and therefore, budget support’s aim of promoting ownership can actually catalyse corruption.
This is especially so where a government has full control over allocation of resources/public funds.
Corruption consequently curtails the appropriateness of budget support, making it ineffective.
Corruption only serves to enrich the few at the expense of the majority.
On the other hand, it has been argued that accountability, a condition attached to budget support, reduces corruption.
It is believed that budget support can make a government more accountable to its stakeholders, of which the donors are part.
Promoting accountability in an economy like Uganda, which derives almost half of its budget from the budget support modality will certainly strengthen its public financial management system.
Monitoring misuse of funds will discipline budget-allocators and this will in turn result in the indefinite decrease of corruption, albeit at snail pace.
It has not been firmly known that budget support is corruption-prone than other forms of aid modalities.
What has is the likelihood that it is appropriate in some countries but not others, and is most likely to be effective in countries with good governance and a sound financial management system.
What is more suitable for corrupt countries, an International Monetary Fund study has argued, is the project based support.
Project based-support, is aid provided to fund a locally-owned, pre-determined project.
The donor and/or their agents are part and parcel of the design and implementation of the project, say road construction, and in most cases are in full control of the funding- this reduces on the possibility of funds being diverted.
But even with this method, corruption, in some instances has managed to filter through some stages of the project cycle. Although of course, it is harder with this kind of financing. nd this is just one of the cons associated with project aid, among high transaction costs, the risk of double use of resources and of donors owning the project.
But beyond corruption, governments tend to frown upon project support as it is prone to inefficiencies through project duplication and can cause macro-economic stability.
Both approaches are definitely not 100% corruption resistant.
So what follows on the direction of aid delivery in Uganda?
There is no definite answer on the direction the Ugandan donor community will uniformly take yet.
But looking from a sustainability point of view, one would argue that what matters is the optimality of the conditions mutually agreed to, and the change it will effect for the grassroot Ugandans will be positively affected.
By Shamilla Kara
Eliminating corruption is one of the conditions donors have set for Uganda.
Considering the size of the nest Uganda has made for corruption and the not-easy-to-efface situation it comes with, will the conditions effect a change within the given timeframe?
Corruption has shot up in recent years, with the increase in budget support aid to Uganda.
It is timely to evaluate the relationship between corruption and the budget approach (conditionality), and what lies ahead in the aid provision sector.
Budget support refers to aid channelled directly to the recipient government’s own financial management system.
This form of aid delivery supports poverty reduction (promoting pro-poor growth) and encourages the ownership of the development process by the recipient country, while imposing conditions on how to allocate resources.
With its characteristic of channelling money without earmarking a specific project, budget support increases the discretion of government officials in allocating funds, potentially increasing corruption in countries where sanctioning of officials is weak.
Experts argue that budget support is not suitable for governments that do not have sound financial management systems in place; for the reason that this kind of aid delivery attracts uncertainty that funds will not be properly accounted for or used for intended purposes.
Also, because of the ability to switch donor resources to other purposes other than the intended ones, this makes it hard to tell where the donor money will head and therefore, budget support’s aim of promoting ownership can actually catalyse corruption.
This is especially so where a government has full control over allocation of resources/public funds.
Corruption consequently curtails the appropriateness of budget support, making it ineffective.
Corruption only serves to enrich the few at the expense of the majority.
On the other hand, it has been argued that accountability, a condition attached to budget support, reduces corruption.
It is believed that budget support can make a government more accountable to its stakeholders, of which the donors are part.
Promoting accountability in an economy like Uganda, which derives almost half of its budget from the budget support modality will certainly strengthen its public financial management system.
Monitoring misuse of funds will discipline budget-allocators and this will in turn result in the indefinite decrease of corruption, albeit at snail pace.
It has not been firmly known that budget support is corruption-prone than other forms of aid modalities.
What has is the likelihood that it is appropriate in some countries but not others, and is most likely to be effective in countries with good governance and a sound financial management system.
What is more suitable for corrupt countries, an International Monetary Fund study has argued, is the project based support.
Project based-support, is aid provided to fund a locally-owned, pre-determined project.
The donor and/or their agents are part and parcel of the design and implementation of the project, say road construction, and in most cases are in full control of the funding- this reduces on the possibility of funds being diverted.
But even with this method, corruption, in some instances has managed to filter through some stages of the project cycle. Although of course, it is harder with this kind of financing. nd this is just one of the cons associated with project aid, among high transaction costs, the risk of double use of resources and of donors owning the project.
But beyond corruption, governments tend to frown upon project support as it is prone to inefficiencies through project duplication and can cause macro-economic stability.
Both approaches are definitely not 100% corruption resistant.
So what follows on the direction of aid delivery in Uganda?
There is no definite answer on the direction the Ugandan donor community will uniformly take yet.
But looking from a sustainability point of view, one would argue that what matters is the optimality of the conditions mutually agreed to, and the change it will effect for the grassroot Ugandans will be positively affected.