Direct Budget Support (Hansard, 3 February 2004)

§ Tony Baldry
To ask the Secretary of State for International Development what steps his Department will take in relation to budget support to identify trends in where the Department's money is being spent. [152084]

§ Hilary Benn
By its nature general budget support cannot be explicitly tracked once it reaches the recipient country budget. Sector budget support can be clearly classified at the broad level, although how this is subsequently distributed between sub sectors is not always known. For example, we may not be able to say how much of our support to the education sector in a particular country is spent on basic education.
However to inform our understanding of where DFID aid flows are being directed, we are developing a method whereby budget support will be notionally classified by extrapolation from the recipient country's own budget plans. So, for example, if the Government were planning to spend 30 per cent. of its budget¹ on education, then 30 per cent. of our budget support to that country would be classified as expenditure on education. All reporting will state clearly that figures are based on notional allocations derived from budget plans and are therefore only indicative. Some data are already available along these lines.
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In the longer term we will seek to agree a standard methodology with other donor agencies facing similar problems. ¹The extrapolation would only reflect that part of the budget which was for developmental purposes.

§ Tony Baldry
To ask the Secretary of State for International Development what assessment he has made of the effectiveness of direct budget support in Uganda. [152086]

§ Hilary Benn
The UK's current budget support arrangement in Uganda began in 2000. Its purpose is to support continued growth and economic stability, to reduce inequality, and to improve the impact of public spending in sectors that are key to poverty reduction and growth.
An internal Project Completion Report (PCR) of the arrangement was completed in September 2003. It concluded that our support had significantly achieved its purpose. The flexibility and predictability of our budget support, together with the role we play in policy dialogue and in providing technical assistance, were identified as important to this success. The strength of our partnerships with Government and also with other donors have also been crucial. Most macroeconomic targets have been met, and the share of Government spending on poverty programmes has increased significantly. The impact of this expenditure has been shown, for example, in growing primary education enrolment, and in important health indicators such as attendance at primary health care clinics. A recent `stocktaking' review of the World Bank's Poverty Reduction Support Credit (PRSC), to which DFID's budget support is linked, has also reported positively on the PRSC budget support instrument.
DFID commissioned an independent evaluation study of direct budget support in 2002. The first phase of this study (December 2002) developed a framework for evaluation that could be applied widely, using Uganda as a particular example. It concluded that budget support had led to improvements in the efficiency of budget allocations, the effectiveness of state institutions, and the degree of public accountability. This work is being used as the basis of a more comprehensive joint donor evaluation of budget support that is now getting under way.

§ Tony Baldry
To ask the Secretary of State for International Development what representations he has received from the National Audit Office on financial controls on direct budget support. [152087]

§ Hilary Benn
DFID works closely with the National Audit Office (NAO) to improve the value for money of the work we do. DFID worked with the NAO to develop and implement our corporate fiduciary risk policy. This is central to the appraisal and management of the risks associated with providing direct budget support.
The NAO recently undertook a review of the safeguards we have in place to prevent misappropriation and diversion of UK aid. This was an important opportunity to take a joint look at the full range of our 772W financial controls, including how we manage the fiduciary risk of budget support. The review concluded that: DFID's work is well-regarded by its partners who acknowledge the leading and proactive role that DFID plays in tackling corruption issues.
It made a number of detailed recommendations which we have taken forward.
We will continue to work with the NAO in this area to ensure that we are able to maximise the developmental benefits associated with budget support.