By Caroline Rickatson
With public finances in disarray, funding for third world projects might be vulnerable. But it remains in the UK's interest to continue offering aid
** International issues will be discussed at a seminar at the CIPFA annual conference in Manchester on Tuesday, June 23 **
Why is the government protecting aid spending when there are so many competing demands at home? Many people argue that development aid should be reduced and the savings passed on to alleviate domestic unemployment and the effects of recession.At the same time, there are calls from some quarters to abandon aid altogether in favour of market-led development.
In the April Budget, Chancellor Alistair Darling announced that the UK’s Official Development Assistance budget for 2009/10 would be £9.1bn, unchanged from the 2007 Comprehensive Spending Review. The Department for International Development’s budget is set for a real average growth rate of 11.4% until 2010/11, with further increases planned.
The department justifies its spending in relation to the scale of global poverty by saying: ‘Tackling [this] human suffering and wasted potential and seeking to improve the lives of others is the greatest moral challenge in the world today. It is also in our own national interest. Globalisation means that the lives of people around the world are becoming more interconnected, and many problems affecting this country – conflict, drug trafficking, environmental degradation, illegal migration – are caused or made worse by global poverty. Getting rid of poverty will make the world a better and safer place for everybody.’
In many ways an aid budget can be seen as an investment in the future stability of many of the fundamental political systems. We live in a globalised world with seemingly distant events having considerable influence, directly and indirectly, on us. Although we live on an island, we do not live in isolation so we cannot ignore the implications of terrorism, war, climate change and other catastrophic events. The DFID’s aim to rid the world of poverty is an ambitious but worthwhile goal and public financial management is at the heart of the matter.
Whatever the political or social context, a sound system of public finance is the foundation stone of good governance and therefore good government. Establishing a fundamentally equitable, transparent and accountable distribution of public resources will ultimately contribute to building fairer and more tolerant societies. This inevitably appears to be a utopian perspective. But it has to be considered from the opposite or alternative view that if nothing is done and corruption becomes the norm, it can have a corrosive impact on those marginalised by the system.
The recent storm of public approbation against MPs’ expenses abuses in the UK is a marker of some of these sensitivities. The effects of this have gone far beyond the immediate issues and are felt to have damaged the credibility of our parliamentary democracy. Similar events happening elsewhere in the world could precipitate further weakening of institutions, the creation of governance vacuums and the promotion of extremism with potentially harmful local and international consequences.
A public finance system that accountably provides good and reliable public services promotes universally held values of common humanity for all parts of the population. There are differences of opinion, however, about the best way of achieving this through international assistance. There are broadly two schools of thought: donors that work within partner governments’ frameworks and donors that work outside them.
The DFID, the European Union, Canada, Australia and New Zealand and the like-minded northern European donors tend to favour the use of government systems. Others, including the US and Japan, prefer to establish their own direct channels in parallel to or outside government systems.
There are risks with all forms of development assistance and direct aid to government budgets is no exception. Therefore, the need for thorough but not paralysing vigilance remains. There have been cases of misappropriation of aid money under all sorts of regimes; much quoted examples abound. Using government systems offers opportunities for donors to support staff capacity development, strengthen financial and governance systems and spread their influence within government.
The DFID approach of working with government systems, although a matter of trust, has the virtue of providing the opportunity for the systems themselves to be strengthened and developed. Naturally, there is a balance to strike when the finance systems are assessed as weak or underperforming and conditions have to be imposed. There are a number of assessment typologies – among them the Public Expenditure Financial Accountability assessment (a joint donor venture that has a highly developed performance indicator set) and Fiduciary Risk Assessment (a DFID approach with specific focus). CIPFA has worked closely with both these tools.
Aid money provided by the UK and other like-minded governments is not simply thrown at partner governments or teams of foreign consultants – it has to be spent according to purpose, be properly accounted for and those responsible held accountable. This is one of the areas where the UK’s experience is so relevant. Although the UK governance structures can appear arcane and out of touch in many contexts, the ethical principles and values established find almost universal recognition. These virtues properly presented can make a real difference to the effectiveness of public financial management and ultimately the provision of public services – which is the ambition of good government.
Improvements to public financial management – the system by which the financial aspects of the public services’ business are directed, controlled and influenced, to support the delivery of the sector’s goals – are used by many donors as the building blocks of their support to less developed countries. By strengthening PFM across a wide range of activities – and not just the traditional budget, accounting, audit and monitoring aspects – donors are attempting to achieve sustainable, locally relevant legacies that reflect self-determined, and not externally imposed, needs. CIPFA is trying to assist donors and governments in determining their priorities for decisions on deploying capacity-building resources.
Building public management capacity in both financial and more general management spheres is a complex and long-term affair. Proper attention has to be paid to sequencing reforms and sustaining them beyond the short-term inputs of many typical projects. Mapping the stages of planned reform and the processes that holistically comprise the areas of intervention (the full scope of public financial management) provides a framework that informs and influences all parties.
There are some examples of good practice being developed and implemented across the world. In Africa, for example, the governments of South Africa, Lesotho and Tanzania have embarked on demanding reform programmes involving the use of professional public financial management training. Some of the countries in the former Yugoslav Republic, particularly Slovenia, are also making impressive progress. Naturally, the degree of donor influence has to be set against a respect for local sovereignty.
Spending on international aid and assistance is big business and still remarkably experimental as new and better ways of provision are being sought by donors and their representatives. The fundamental virtues of good governance and professionalism are still very much in demand, particularly in the public financial management arena. If donor spending can be used to achieve the double benefit of developing local capacity and confidence as well as improving public service outcomes, it will have done a great deal.
The UK government recognised the necessity to spend to reduce poverty. This was recently endorsed by the Commons international development select committee in its Aid under pressure report. Our challenge is to underpin this investment with sound public financial management.
Caroline Rickatson is CIPFA's international director. International issues will be discussed at a seminar at the CIPFA annual conference in Manchester on Tuesday, June 23
