24.  Strengthening domestic accountability through Parliaments, civil society groups and State Audit Institutions is important for ensuring that governments in developing countries use budget support to tackle poverty and account for their achievements. Although budget support aims to promote better domestic accountability by spending donor funds through government systems, the relative power of donors may distort accountability priorities.[58] A CARE International and ActionAid International report looking at Malawi, Tanzania and Uganda concluded that budget support had predominantly increased government accountability to donors.[59] DFID reported that it supports reforms which encourage developing country governments to become self-sustaining and promote domestic accountability in this way, giving the example of supporting tax reform and increased revenue collection.[60]

25.  Historically, DFID has not always paid sufficient attention to building accountability and challenge within developing countries before starting to use budget support. For example, DFID or other donors had provided assistance to Parliaments prior to using budget support in just 20% of cases, and 13% of cases for State Audit Institutions.[61] DFID's 2006 White Paper emphasised the importance of strengthening domestic accountability. DFID or other donors now provide support to key domestic institutions in the majority of cases where budget support is used. For example, donors provide support to Parliaments in two-thirds of countries where DFID provides budget support, compared with 40% of countries where it does not.[62] But there are still a minority of cases where no donor supports domestic institutions, and many domestic institutions are still under-funded and remain weak. Given DFID's plans to expand budget support to include countries such as Nigeria, it will be important to provide adequate support to their Parliaments, audit offices and civil society. UK bodies such as the National Audit Office and Parliament also have a role in helping to strengthen accountability through advice and technical assistance, sometimes funded through DFID.[63]

26.  Parliaments are vital for securing accountability for government expenditure but some opposition politicians are inexperienced and do not receive sufficient support to allow them to provide an effective challenge role.[64] DFID is not able to support political parties directly as such funding would not fit within its poverty reduction remit. Instead it builds the capacity of public institutions. For example, in Ghana and Zambia DFID has supported the televising of Public Accounts Committee hearings in order to promote higher levels of awareness and better public scrutiny.[65] Overall, however, many Parliaments remain weak.

27.  Budget support has wider potential impacts on the political situation in-country. Providing funding directly to government may lead some to believe that the UK is providing support to a political party which may give a ruling party an advantage even if free and fair elections are held. DFID is sensitive to this issue and monitors the government's actions. In 2005, in Uganda DFID withheld £20 million of its aid programme in response to its assessment that the Ugandan government was trying to disadvantage the opposition in the run-up to an election. DFID also took a similar line in Sierra Leone during municipal elections.[66]

28.  When providing funding through government systems there is also a risk that political elites retain control of funding, and the poorest or those with opposing political views may not benefit equally.[67] For example, in Mozambique the opposition Renamo party has complained that its supporters do not receive as much funding as those who traditionally support the governing party.[68] DFID accepted there are political implications of providing budget support. DFID promotes greater transparency as a safeguard against budget support being used to benefit political parties or elites. For example, the Kenyan government displayed each school's budget publicly so that the local community understood how much funding has been received and could monitor the results of the funding.[69]

29.  DFID works closely with the Foreign and Commonwealth Office on issues of political governance and human rights.[70] Given the political sensitivities of promoting better domestic accountability, however, DFID requires staff with astute political antennae. They also need to represent the UK well, have a good understanding of the political situation in a country and, in particular, understand the needs of those from poor backgrounds.[71] DFID is committed to appointing the staff with the right skills, regardless of social, economic, gender and ethnic background, in order to deliver development assistance to those who need it most. It does not collect information on the social and educational backgrounds of its own staff. DFID reported that it is a very diverse organisation, performing well against diversity targets.[72] Figure 3 shows how it compares to civil service averages.

30.  Accountability to UK taxpayers for what DFID achieves with budget support funding is also important. DFID is required to assure Parliament that its funding has been spent on reducing poverty, that it has addressed key risks to UK funds and that money has been spent efficiently and effectively. Such assurance is increasingly important for DFID as the UK is the third largest provider of budget support after the World Bank and the European Commission. DFID provides some 18% of its bilateral programme as budget support, more than three times that of any other bilateral donor.[73]

Figure 3: DFID's diversity statistics compared with the Civil Service average

Source: DFID supplementary note to committee and Civil Service Statistics annual report 2006

31.  When using budget support, DFID has no direct control over the budget priorities and allocations of the government in the developing country so it is even harder for DFID, than for domestic UK departments, to ensure that it gets good value for money.[74] DFID believes that setting clear targets gives it influence over the way in which budgets are spent. But evidence on the extent to which budget support facilitates donor influence over developing nation policies is limited. On occasions, DFID argues that providing budget support buys it influence to participate in negotiations over priorities and budget allocations.[75] Yet, at other times it argues that using leverage rarely works in influencing priorities of recipient governments.[76] Such confusion is seen elsewhere: an evaluation of budget support in Ghana reported that budget support had been influential in influencing expenditure decisions but also concluded that donors had overemphasised its use to gain policy leverage.[77]

32.  In some cases developing country expenditure decisions have given cause for concern. For example, in Rwanda in 2007, defence expenditure increased from 8.2% to 8.5% of the total budget, while health and education expenditure declined by 1.2%.[78] DFID explained that there was a specific threat of insecurity in that year which made such a rise in defence excusable.[79] In Zambia there was an also an increase in defence expenditure. In 2001, the Tanzanian government purchased a controversial radar system costing $40 million, despite UK government objections.[80] Such examples do not give the UK taxpayer assurance that its funds are helping poor people.

33.  DFID has a responsibility to UK taxpayers to ensure that funds are used as effectively as possible, for the purposes authorised by the UK parliament. Weaknesses in information and monitoring have prevented any direct assessment of cost-effectiveness. Identifying and quantifying the risks to UK funds when used for budget support is a fundamental part of any decision over whether or not such support is a suitable option. DFID has assessed financial risks as high in a significant proportion of its internal assessments of recipient countries. But currently there is no system whereby the UK Parliament and other stakeholders receive information routinely on the risks which DFID is choosing to take with such funds, the significance of those risks for levels of corruption waste or inefficiency, or the benefits it hopes to attain from taking these risks.

59   Q 56; C&AG's Report, para 3.18; Where to now?: Implications of changing relations between DFID and recipient governments and NGOs in Malawi, Tanzania and Uganda, CARE International and ActionAid International Back

60   Q 89 Back

61   Qq 13, 55 Back

62   C&AG's Report, Figure 16 Back

63   Qq 100, 109 Back

64   Q 90 Back

65   Q 58 Back

66   Q 81 Back

67   Q 83 Back

68   Q 98 Back

69   Q 90 Back

70   Q 82 Back

71   Q 91 Back

72   Ev 18 Back

73   Qq 130-131 Back

74   Qq 6, 63-64, 134 Back

75   Q 86 Back

76   Treasury Minute on First Report from the Committee of Public Accounts 2007-08, Cm 7323, para 17 Back

77   Overseas Development Institute briefing paper: Budget support to Ghana: A risk worth taking? Back

78   Qq 33, 76-79 Back

79   Q 79 Back

80   Qq 86-88 Back