European taxpayers would be right to grumble a bit about the fact that they spent millions of euros/pounds to help re-elect Uganda’s President Museveni. US taxpayers can breathe a sigh of relief that the United States government has changed the way it gives aid in Uganda over the last ten years. And, it is staggering how little we Americans know about the level of foreign aid we give.
Foreign aid is a tough sell in most Western countries. Particularly among conservatives, many of whom believe “charity starts at home,” people question why we are sending millions of dollars abroad instead of fixing problems domestically. Lawmakers have to continually battle to maintain levels of foreign aid without making it publicly known that the deeper goals of aid are actually strategic rather than compassionate.
Budget Support vs. Project Funding
To even begin to sort out the intricate web of foreign aid, it is important to understand the different ways money is given to recipient countries. Two broad categories, under which you will find many unique approaches, are Direct Budget Support and Project Funding.
To save myself some mental anguish, I will ask my friend Wikipedia to explain the differences to you:
Budget support is a particular way of giving international Development aid, also known as an aid instrument or aid modality. With budget support, money is given directly to a recipient country government, usually from a donor government. Budget support differs from other types of aid modalities such as: 1)Balance of payments support, which is currently mainly the domain of the International Monetary Fund. With balance of payments support the funds go to the central bank for foreign exchange purposes, while with Budget Support they generally go to the Ministry of Finance or equivalent and into the budget for public spending. 2) Project aid – where development assistance funds are used by donors to implement a specific project, with donors retaining control of the project’s financing and management.
In practice, budget support varies dramatically and is done in a large range of different ways. One of the broadest distinctions is between general budget support and sector budget support. General budget support is budget support that is unearmarked for a specific sector of government spending. Sector budget support is budget support that is earmarked for use in a specific sector or budget line, e.g. health or education.
Over the years, the balance of aid has shifted back and forth between these modalities. In a non-corrupt system, direct budget support is ideal, because donor dollars are being used to strengthen national systems (like health care, transportation, education, etc) that will be fully independent once the recipient country gets on its financial feet. It also supports the idea that the recipient country knows what its citizens need most and how best to implement those programs rather than the arrogance of a group of foreigners coming in and deciding what programs to implement.
Unfortunately, we don’t live in an ideal world, and many governments around the world are corrupt. This is why often, after a few years of budget support, some countries will shift to project support. They get tired of seeing their contributions being used to buy villas in France for government ministers and they want to have control over that money again.
Europe Likes Direct Budget Support
Last August, the EU sent out a press release, proudly announcing that it had just released 23 million Euros of budget support to Uganda. Five months later, we learned that the Uganda government is broke because the coffers were drained to fund President Museveni’s re-election campaign. This is not to even mention the millions of Euros and Pounds that were given by the 12 or so other budget support donors in Uganda.
In the chart below, you can see the the European Commission increased the amount of funding it gives through General Budget Support from 0% to 42% over the last 12 years (the 10th EDF – European Development Fund – goes from 2008 – 2013):
The UK Aid Network makes the lofty statement that “The UK is an international leader on delivering aid through budget support and in
support of national development programs.”
“What is the role of budget support in improving ownership and aid effectiveness?
The aid modality that provides the most significant potential for building and sustaining country ownership and institutions, delivering mass increases in predictable development spending and encouraging donors to work together is budget support – delivering aid directly to the budgets of governments. This form of aid can also help to promote the accountability of governments to their citizens, by putting the focus on national institutions for delivering development assistance rather than donors. Globally only 5-10% of aid is delivered in this way. However, the UK is the global leader in its use; in 2008/9 it delivered 27% of its total bilateral aid and 39% of its bilateral aid to sub-Saharan Africa through budget support (DFID 2009b).
Of course, delivering aid directly to a government’s budget requires donors to have sufficient trust in its accountability [emphasis mine], development achievements, respect for citizens rights and level of governance, all factors that go into the UK’s assessment of the suitability of countries to receive budget support and their ongoing monitoring of performance.”
Budget Support Dollars are Easier to Steal
Once the donor dollars make it into government accounts, it is extremely difficult to track it, or to stop it from disappearing. European donors know full well that their money was taken and used in this election, and even before that they were aware of a certain amount of it getting siphoned off. Donor countries simply have to make a calculation as to how much corruption is acceptable. I have a feeling, though, that the taxpayers who actually contributed the money might have a different standard for what is “acceptable.”
USAID Doesn’t Give Budget Support
As usual, European donors have threatened to cut off the money tap because of the high level of corruption, even though they won’t (that could be a whole ‘nother post in itself). In a press conference this month, David Ekerson, the Director of USAID (US Agency for International Development) was asked why he isn’t also threatening to cut off the US money. His response was:
“The donors you talk about are budget support donors. American systems work differently. The support donors have expectations based on what will be the outcomes from government and so when you talk about corruption in CHOGM it is specific to what they will have agreed. USAID assistance does not go to support the budget of the government of Uganda. We want to work with the government of Uganda but until we can be sure that the money we provided goes to the people of Uganda and we can track down the vaccination given to kids then we can’t give aid.”
Basically, the US doesn’t trust the Ugandan government with our money. That’s good news, particularly given that USAID spent about $341 million here in 2010 (Uganda is the 10th largest USAID program in the world).
Americans Hugely Overestimate Foreign Aid Contributions
While $341 million sounds like a lot of money, foreign aid constitutes a tiny drop in our budgetary bucket. There is a HUGE misconception in the US about how much aid is actually sent abroad. According to a recent poll done by World Public Opinion,
“Asked to estimate how much of the federal budget goes to foreign aid the median estimate is 25 percent. Asked how much they thought would be an “appropriate” percentage the median response is 10 percent.
In fact just 1 percent of the federal budget goes to foreign aid. Even if one only includes the discretionary part of the federal budget, foreign aid represents only 2.6 percent.”
The study also showed major differences in estimates based on the respondents’ education levels:
“In the current poll estimates of foreign aid vary by education, growing more accurate with higher levels of education. Among those with less than a high school education the median estimate was that foreign aid represented an extraordinary 45 percent of the budget, those with only a high school diploma 25 percent, those with some college at 20 percent. However, even those with a college degree or higher still overestimate by a wide margin, with a median estimate of 15 percent of the budget.”
With some people assuming we give as much as 45% of our budget away, it is understandable that this misinformation leads to people wanting to cut foreign aid. It is also important to realize that one third of the total is given to Israel and Egypt, mostly in the form of arms that were manufactured in the United States, thereby boosting American industry. That means that much of our foreign aid doesn’t go to helping developing countries or to humanitarian projects. It is a strategic homeland-security investent.
Is Project-based Aid Any Better?
For anyone really interested in diving into this question, it is important to read Dead Aid by Dambisa Moyo. She takes a critical look at how foreign aid props up dictators and tyrants and removes their motivation to provide services to their people. For a list of pro- and con- books that give even more perspectives to chew on, check out this list by Philanthropy Action of Top 5 Books on Foreign Aid.
Then, once you’ve read all of these books, come back and make a comment on this post on whether you think foreign aid works.
Mark D. Jordahl – Kampala