Budget support and corruption

An enquiry has been demanded into the way some UK aid is given directly to the governments of some countries.  According to the Daily Telegraph

Figures from the Department for International Development show that over the past five years the UK has handed £1.6 billion to 15 of the world’s poorest countries. But research from campaigning group Transparency International shows that many of these rank highly in its corruption index of 180 countries.

There are several points to make about this:

  1. There is no evidence that aid has been subject to corruption
    Transparency International does not claim (pdf) to have found any evidence of corruption in the use of UK aid. The Daily Telegraph report says that that some countries to which the UK gives budget support score poorly on the TI corruption index. But it does not follow that any of that aid is being corrupted and there is no evidence in the TI report that it is.
  2. Budget support is no more likely to be subject to corruption than other forms of aid
    A major, multi-donor review of budget support

    “Corruption is a serious problem in all the study countries, but the country study teams found no clear evidence that budget support funds were, in practice, more affected by corruption than other forms of aid.

    Indeed, the Conservative Party policy review on Globalisation and Global Poverty notes:

    Many oppose Programme Support, and particularly General Budget Support, because of worries about corruption. However, other modes of delivering aid are also prone to corruption.

    The same TI report hightlights extensive corruption in conflict, reconstruction and post-conflict contexts (which are not typically the places to which the UK gives budget support). The report highlights the risk of corruption in tied aid and the risk of bidder collusion in aid tenders (both of which are reduced by budget support).  In other words, in countries in which corruption is high, all aid will be at risk of corruption.  Moving aid from budget support to other forms of aid does not reduce that risk.

  3. Giving budget support enables donors to tackle corruption
    Corruption is very bad for a country, especially for the poor.  If donors are serious about corruption, they should be trying to reduce corruption as a whole, and not just protecting their own money. Experience suggests that when donors bypass a country’s budget, procument and auditing processes they are less likely to take an interest in tackling broader corruption. When they are interested, they have no basis on which to get involved, since none of their money is at stake.  If donors want to help to reduce corruption they have to engage with the country’s processes. Budget support not only forces donors to do so, it turns them into legitimate stakeholders in helping to improve those systems.  This engagement helps address corruption in the whole of the government budget, and not just that part financed by foreign aid.
  4. Using other forms of aid is a less effective way to reduce corruption
    Again in the same report, Transparency International say that making aid more accountable to donors is less effective at reducing corruption than steps to increase domestic accountability:

    Upward accountability by recipient countries to donors has demonstrated its serious limitations in terms of relevance as well as in its ability to detect corruption. Rather strengthening the accountability of aid toward intended beneficiaries is the most effective way of limiting abuses.

    In other words, Transparency International itself does not believe that replacing aid that is locally accountable with aid that is accountable to donors is a good way to reduce corruption.

  5. Budget support improves local accountability and so tackles the broader problem of corruption and financial management
    The Conservative Party policy review observes:

    “if aid is channelled through the government budget and is accompanied by steps to strengthen public financial management, the handling not only of donor funds but of tax revenues is improved. In addition, Budget and Programme Support make it easier for parliaments, the media and electorates to hold government accountable for how aid money alongside tax revenues are spent.”

    Because budget support provides donors with an opportunity to engage in reform of the public finances as a whole, and because it increases rather than reduces local accountability, it is likely that  budget support will result in less corruption in the long run than alternative forms of aid.

  6. There is a cost to switching away from budget support
    Switching aid away from budget support to other forms of aid comes at a cost: on balance it reduces the effectiveness of that aid, so reducing the the overall impact on development; and it may reduce the ability of the country concerned to tackle the very problem of corruption that we profess to be concerned about.  The Conservative Party policy review said that:
  7. When donors create parallel structures to deliver aid they can undermine both government ownership of policy and its ability to deliver (by recruiting scarce talent). So where aid can be effectively delivered through government or departmental budgets that is desirable.

In conclusion: donors are right to be concerned about corruption, but there is no reason to think that corruption is reduced, either in aid or in the country as a whole, if donors switch their aid from budget support to other forms of aid. On the other hand there are costs to doing so – in the form of reduced aid effectiveness, which means more people dying, as well as slower progress towards systems that are more accountable and less susceptible to corruption in the future.

So it does not follow that because some countries perform badly on the TI corruption perceptions index, that it is a bad idea to give those countries aid in the form of budget support.  Perhaps that is why the TI report itself explicitly counsels against that kind of reasoning:

Some governments have sought to use corruption scores to determine which countries receive aid and which do not. TI does not encourage the use of the Corruption Perceptions Index (CPI) in this way.

2 thoughts on “Budget support and corruption”

  1. I lean towards budget support myself and these are mostly strong arguments, with the exception of the first and last. Your first point is surprising as you know what fungibility means dont you? Your last point is circular. Budget support is better because…… it’s better. The questions being asked in the UK and other places will be asked more often as recession bites.

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