Budget support to Ghana: A risk worth taking?
The Briefing paper argues that the Ghana's Multidonor budget Support has done enough to justify itself but is flawed.It has not achieved a sufficient critical mass and it has strayed too far from its initial objective of reducing transactions costs. These flaws have prevented it from minimising the risks of injecting budget support into a still weak fiscal system. While it is seen as having kept reform on the agenda and as having a generally pro-poor influence, it has neither been able to minimise the risks by galvanising more effective PFM systems nor to maximise the payoff in terms of poverty-reduction.
Remedial action is therefore recommended, along the following lines:
• The MDBS programme needs to be re-conceived primarily as a method of budget financing, not as a tool for policy leverage.
• Annual disbursements should not be conditional but instead be dependent upon the maintenance of ‘due processes’ in public spending (see Box 2).
• Reforms should be promoted by open dialogue with both domestic and external stakeholders.
• The PAF needs to be re-designed as a mechanism for enhancing internal, rather than external, accountability, by making reform targets and results public, and by giving wider access to policy debates.
• The original objective of minimising transaction costs needs to be brought back to centre-stage.
Parallel steps by the Ghanaian Government are also needed. It should:
• Develop a statement of aid policy setting out Government preferences for different forms of assistance and the future development of MDBS
vis à vis other modalities.
• Take actions to strengthen the public finances and raise the credibility of the budget, to reduce dangers of misuse of budgetary aid.
• Strengthen its capacity to put assistance to good use. This would require difficult decisions about the desirable size and remuneration of the public service.