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April 04, 2011

Global Aid Transparency Movement: A Call for Action?

Posted by Florence Kuteesa, former budget director of Uganda

A global aid transparency movement, bringing together several initiatives with a shared vision[1], has received increasing interest and attention since the 2005 Paris Declaration for Aid Effectiveness. The main thrust of the movement is to make information about aid spending easier to access and understand by promoting public disclosure of regular, detailed, and timely reports on volume, allocations, and, where available, results of aid spending.

The movement is premised on the understanding that joint commitment from both donors and recipient governments is required to enforce global aid transparency. The International Aid Transparency Initiative (IATI) advocates for one gateway to access information from different sources by setting up an online registry that records the location of information. Publish What You Fundconducted an assessment of donor transparency levels whose findings were published in the 2010 Aid Transparency Assessment Report and discussed below. A joint initiative[2] is underway to formulate common standards to determine what information participating donors will publish and formats in which it will be presented.

The extent to which capturing aid at the global level will deliver its intended objective(s) will depend on the demonstrated commitment from both donors and recipient governments to deal with the existing challenges. Evidence from the 2008 Survey on Monitoring the Paris Declaration shows that while progress is being made, further reform and faster action from both donors and recipient governments are needed.At the donor level, the 2010 Aid Transparency Assessment Report highlights several shortcomings that include: the wide variation in levels of donor transparency, a multitude of donor practices and procedures, and lack of comparable and primary data which form the basis for the global aid movement. At the country level, the irony is that low income countries with more limited institutional capacity for delivering fiscal transparency do tend to attract greater volumes of aid, but the aid-related practices have not provided the right incentives for effectively improving transparency.

In examining the relationship between aid and budget transparency, Ramkumar and De Renzio (Open Budget Survey 2009) noted that aid dependency has to some extent undermined domestic PFM systems in recipient governments. This is because of the resultant fragmented budget process (dual budgeting practices), undermining budget credibility (characterized by inadequate coverage and unpredictability) and complicating accountability and fiscal oversight of aid resources. This is an area being addressed by other initiatives such as the Organisation for Economic Co-operation and Development (OECD) task force on aid effectiveness and Collaboration of African Budget Reform Initiative (CABRI). The critical issue, though, is that the country-level challenges are long-standing and can be seen as vicious circles both in their geneses and diverse outcomes. For example, poor information on project aid and unclear aid disbursements means that recipient governments must make budgetary decisions based on partial, inaccurate, or unreliable information. The result has been that the government can neither foster strategic allocation of aid resources nor accurately capture aid-funded activities in the budget or annual appropriations. Thus monitoring, reporting, auditing, and assessing the results and impact of donor spending become onerous and the recipient will not be in position to provide very reliable data and information on allocation, use, and impact of aid.

Recipient governments with weak public financial management systems do not necessarily utilize the available information on donor inflows to enhance aid transparency. Weak systems undermine mainstreaming of aid resources into the budget cycle that runs from macro-economic and fiscal functions, to treasury functions and accountability mechanisms. Moreover, recent efforts to adopt national principles and guidelines for aid harmonization and effectiveness are yet to deliver the desired results. Consequently, donors have instead responded with a multitude of aid delivery modalities[3] and associated different mechanisms for planning, budgeting, implementation, reporting, and accountability. This results in overloading existing weak institutions and systems or creation of special project implementation units that are normally not part of mainstream government agencies. And the ultimate outcome is that there are no built-in incentives for aid-dependent countries to promote proper coordination of donor activities or deal with the negative consequences of these practices, further jeopardizing fiscal transparency and oversight of donor-funded activities. Under the circumstances, it becomes more difficult to identify the critical problem(s) which may range from institutional incompetence, ineffective guidelines and procedures, to numerous accountability practices.

The still weak budget transparency provides a compelling case to effectively monitor the adoption of international fiscal transparency norms and standards.[4] Without undermining the global movement, it is important to underscore that it is at country-level that accelerated action is required to promote fiscal transparency and oversight. Recipient governments need to improve the quality of the information and strengthen processes related to management of public (domestic) resources, including external resources. There is no doubt that both donors and recipients need to change their attitude and practices towards better transparency, accountability and effectiveness of aid. However, the change in donor practices and procedures process may be difficult to achieve in the short term because of varied donor policies and preferences. It is in this regard that the recommendations from the 2008 Survey on Monitoring on the implementation of Paris Declaration on Aid Effectiveness emphasize that donors should adopt clear policies and establish incentive mechanisms for using country systems.

The global aid transparency movement could serve as a wake-up call to strengthen the Millennium Development Goal (MDG 8) on developing a global partnership for development, and possibly introduce a new MDG indicator on fiscal transparency and accountability. This would help both donors and recipient governments foster further action to use and strengthen country systems and put accountability within such systems, where it should belong.

[1] Many initiatives are involved, including:

(i) The International Aid Transparency Initiative (IATI) was launched in September 2008 as part of Paris Declaration for Aid Effectiveness (2005). It is a temporary coalition of donor governments, governments of developing countries, and NGOs (non-governmental organizations working together to implement the Accra Agenda for Action commitments on transparency, to make information about aid spending easier to access and understand).   

(ii) Publish What You Fund is a global campaign for aid transparency, urging donors to disclose their aid information regularly and promptly, and in a standardized format that will be comparable with other countries and accessible to all. It was launched at the same time as IATI and its mission is to make available and accessible comprehensive, timely, and comparable information on foreign aid.

 (iii) The International Budget Partnership (IBP) is a network of civil society organizations in selected countries in sub-Saharan Africa, Asia, and Latin America that seeks to make government budgeting more transparent and participatory, more responsive to national priorities, better able to resist corruption, and more efficient and effective. It publishes the Open Budget Survey Reports (2009 and 2010).

(iv) The Overseas Development Institute (ODI-UK) has a strong interest in both budget and aid transparency and defends the need for substantiating aid transparency and accountability between donors, recipients, and their respective taxpayers. ODI has provided technical support to the IATI in developing the framework for a standard format of information about aid that is currently undergoing rounds of consultation.

[2] It is as a joint engagement with Publish What You Fund, the Overseas Development Institute (ODI-UK), and the International Budget Partnership (IBP).

[3] The modalities for delivering aid to government are diverse. First, at an aggregate level, the modes could be categorized as budget support, and project aid. Further, within each category, there could be several modalities. For example, budget support could be general (non-earmarked) or earmarked to a specific sector or activity or program (provided by an individual donor or a group of donors). Project aid could be disbursed by a single donor or pooled under a basket arrangement by several donors.

[4] These include: the IMF Code and Manual of Good Practices on Fiscal Transparency; the 2003 International Public Sector Accounting Standard (IPSAS); the IMF Government Finance Statistics Manual (GFSM 2001), which provides a standard framework for budget classification and fiscal reporting; and CABRI’s initiative on “Putting Aid on the Budget.”

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.


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