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What conditions favor the success of general budget support and sector program assistance? Malawi country case study

November 2004

USAID Bureau for Policy and Program Coordination


SARPN acknowledges the DEC website as the source of this document: www.dec.org
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Introduction

General Budget Support (GBS) has stirred interest among many aid donors. Rather than running their own projects, donors provide GBS funds to a government, which spends the money on its own development projects. GBS funds are not earmarked for specific uses, but support the government’s overall development effort. Another approach is Sector Program Assistance (SPA), where policy-based conditionality promotes institutional reforms. A third is the Sector-Wide Approach (SWAp), where all donor assistance is coordinated in support of a common set of reforms and a sector expenditure program.

This evaluation uses Malawi as a case study to identify the country conditions needed to make these aid approaches successful—and pitfalls and problems to avoid. The study, part of a multicountry field evaluation effort, was undertaken by the Evaluation Studies division of USAID’s Bureau for Policy and Program Coordination (PPC). In addition to Malawi, PPC completed studies on Mozambique1, Nicaragua, and East Timor. The Bureau for Africa has completed a GBS study of Tanzania2.

GBS donors argue that if a developing country has a logical poverty reduction plan, a sound budget system, and the ability to implement development projects, it makes sense for donors to provide GBS. Those donors see GBS as an effective way to build government commitment and ownership. They note that if development is to be successful and selfsustaining, the developing country must “own” the process. GBS donors are enthusiastic about their new aid approach and feel it should be used in most developing countries. Other donors note that GBS might work well in some countries but not in others: country conditions matter.

Malawi had successful sector policy reform programs in the mid-1990s. But in recent years there have been serious problems with GBS and, to a lesser extent, SPA. Malawi’s economic numbers tell a sad story. Annual per capita GDP growth rates were a dismal –0.2 percent from 1982 to 1992 and only slightly better, at +1.4 percent, from 1992 to 2002. Per capita gross national income was $220 in 1998 but had fallen to $160 in 2002. Sixty-five percent of the population lives below the national poverty line, and life expectancy at birth is only 38 years.

Donors want to help Malawi, but they are reluctant to move from donor-managed projects to GBS, SPA, or SWAps. While Malawi’s development policies may be sound, all too often they are not reflected in budget expenditures. The government lacks financial and monetary discipline and, as a result, donors lack confidence in government budget management. Finally, government corruption is a growing problem. Macroeconomic and budget conditions will have to improve before these assistance approaches will be widely accepted by donors.

In early 2004, Malawi failed six Millennium Challenge Account (MCA) indicators, the most troubling being those dealing with corruption and fiscal policy. With the election of a reform-minded government in mid-2004, the indicators have improved, and Malawi is now an MCA threshold country.


Footnotes:
  1. PN-ACU-999 and PN-ACW-878, available online at www.dec.org.

  2. PN-ADA-029, available online at www.dec.org.


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