Direct Budget Support

I’m in Ethiopia for two weeks to evaluate a project implemented by a different donor than I am usually working with. This assignment is really interesting because the donor has a very different approach to development than the donor I am used to working with. With the model I am used to, the donor funds individual stand alone targeted projects that are implemented by consulting firms (like mine) or NGOs. This donor supports the government by directly putting money into their budget and letting the government decide how it should be spent and managed. The Ethiopian government is then supposed to send the donor reports that (hopefully) show that basic service provision increased with the added funds in the budget.

I have never really thought direct budget support (or DBS as it is called) is a good idea. I know it is paternalistic, but with the low level of capacity in the government and the high potential for corruption, it just seems to me that the money has more impact on the ground when it is used to fund projects. In fact, at the end of day two in Ethiopia, I am finding this assignment a little depressing because it does not seem that the project is having a major impact (although I can’t say for sure as the evaluation is not over and I am of course not biasing the results).

DBS was a very popular form of aid in Ethiopia until last November (when I was last here) when the government decided to shoot 60 people protesting the election results from last May. The international community responded quickly by suspending all DBS and the Ethiopian government lost 300 million dollars from their operating budget overnight. As you can imagine this has a dramatic impact on the health, education, agriculture, and other sectors supported by the government. So donors are now scrambling to figure out how to maintain the provision of basic services. The plan is to provide budget support at the regional level (Ethiopia is a federation of regions), but this does not address my concerns.
DBS is mostly a tool to influence governance in developing countries. It can be used to reward good governance, such as in Malawi where DBS was reinstated after democratic elections and a change of government in, or to punish bad governance such as here in Ethiopia. But if you believe that the objective of aid funds should be to reduce poverty, tackle disease and build strong economies, then I would argue the DBS is a bunch of political BS diverting funds from where it is really needed.