General budget support : an alternative assistance approach -- Mozambique country case study

While most non-project assistance approaches depend on some degree of earmarking or policy conditionality, GBS relies on broad agreements and an acknowledgment that appropriate development policies are in place. Funds usually flow directly to the finance ministry. If a recipient government demonstrates its commitment to broad development goals and donors agree, GBS donors participate in a planning dialogue with central government officials and pool their aid resources to support the government"s development efforts. In applying this approach, the host country finance ministry allocates donor financing and uses its own procurement and accounting systems, which some donors argue is a manifestation of country "ownership" that can lead to sustainable development. In Mozambique, a large group of donors has decided to move away from projects in favor of GBS, providing a good case study to examine the conditions under which this approach might be recommended. Donors in Mozambique have a long history of coordination, beginning with their humanitarian efforts during and after the civil war. Currently, donors coordinate through a number of mechanisms, including a group comprised of all of the GBS donors plus the United States as an observer and donor sub-committees. A GBS program in Mozambique has particular appeal to some donors and has garnered their support because of the country"s well-designed development and poverty reduction plan. In Mozambique there are many different donors with a variety of views about GBS. The proportion donor assistance provided using GBS ranges from 10% to 50%. Donors also provide sector support as well as through traditional projects, TA, and support to the nonprofit and private sectors. While GBS may contribute to sustainable development, there are a number of risks inherent in its use. If government institutions and management capabilities are weak, development suffers. Mozambique has established good planning mechanisms, but still has extremely weak accounting and financial control systems. Public expenditures management is weak, and there is considerable fiduciary risk. These weaknesses contribute to a significant risk of inappropriate spending or outright theft. The shift to GBS is relatively recent and there are some donors who prefer to wait until more experience is gained in its use. Though it is too soon to know whether improved government performance does result from GBS, this assessment examines the factors necessary for GBS to work successfully in Mozambique. Using the lessons learned from Mozambique, it is possible to identify key factors that should be examined in other countries where donors are considering GBS. These lessons and recommendations are summarized in PN-ACU-999. (Author abstract, modified)