Corruption in Public Financial Management and Procurement:
Direct budget support
Written for U4 by Ivar Kolstad (July 2005)
See also:
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Should
Corrupt Countries receive Budget Support? CMI Brief November 2005, Volume 4, No.4 |
Norad's comments to the DBS Issue paper and CMI Brief
Introduction
How corruption affects the appropriateness and design of budget support is the topic of these issue pages.
The aim is to compare the effectiveness of budget support versus that of other aid modalities, in particular project support, in partner countries characterized by corruption.
It discusses how corruption affects or mediates the impact of budget support on developmental outcomes such as growth and poverty, but also the impact of budget support on institutional reform.
Budget support is normally policy-based aid. As shown in the below figure, the issue paper is structured around this observation.
In addition, the paper outlines how budget support might in itself influence
the level of corruption in partner countries.
The text draws on available studies and evaluations addressing the question of corruption and budget support. As available evidence on this is limited, there is some extrapolation from studies of related issues, and some conclusions must be regarded as tentative and preliminary.
The rise of budget support and fiduciary risk assessments
Budget support is on the rise. Though general budget support accounted for only a small part of total official development assistance in the 1990s, recently several donors have signalled a commitment to increasing the share of aid given as budget support. For instance, the World Bank spent about 50% of its total assistance on budget support in 2002, up from about 10% in the 1980s. Similarly, DFID spends about 15% of its current budget on budget support, a proportion that is to increase in coming years.
Budget support requires a well-functioning public financial management (PFM) system to be effective. For this reason, the increased emphasis on budget support has lead to an interest among donors in developing and improving tools for assessing fiduciary risk in partner country PFM systems. Corruption is one type of fiduciary risk which is particularly relevant for budget support. And the implications of corruption for budget support has been a hot topic since DFID recently rejected budget support to Bangladesh due to its high level of corruption.
What you will not find in this issue paper
This issue paper focuses on corruption-related issues only. It therefore does not contain a complete account of all the arguments, questions, and debates, that concern the use of budget support. Nor does the paper go into detail on issues that are covered elsewhere on the U4 anti-corruption resource centre web site. Certain areas where corruption may play a role, but where there is no evidence available, are also given limited attention. In sum, some of the issues covered to a lesser degree are:
- The political economy of budget processes: For a more indepth discussion
of this, please consult the issue paper on
budget processes and corruption
- The impact of budget support on tax
collection effort
- PFM technical assistance/capacity building: A
review of experiences from PFM capacity building in Africa
- Indices of corruption: See 'Estimating corruption: Comments on available data' for an overview document
The issue paper is based on information that is currently available.
As the evidence on corruption and budget support is limited, patchy, scattered
and often anecdotal, some of the conclusions are tentative and preliminary,
and should be reviewed as new evidence becomes available. In particular,
a multi-donor evaluation of budget support currently underway, may offer
additional information. As the reports from this evaluation are due September
2005 (country case studies) and December 2005 (final report), their conclusions
are not included in this paper. According to informed sources, however,
corruption is not given much attention in these evaluations.
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Public Financial
Management and Procurement |
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Budget process |
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Revenue administration |
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Fiscal decentralisation |
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Direct budget support |
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Public Expenditure Tracking |
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Procurement |
Query the U4 helpdesk about PFM |
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U4 welcomes any | CONTACT |
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Hannes Hechler
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| RECOMMENDED READING |
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“It is our money. Where is it gone?” is a short documentary, released by the International Budget Partnership, on an initiative, in Mombasa (Kenya) to involve communities directly in monitoring the Constituency Development Fund, a fund managed by Kenyan parliamentarians. Through social audits, communities monitored budgets and held their government accountable for managing the public’s money and meeting the needs of the poor.
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