Public Financial Management for PRSP - Deutsches Institut für ...

Stefan Leiderer et al.
ments. 34 Consequently, when external funding is delayed or does not materialise
at all, the government may be required to turn to ad-hoc solutions such
as domestic borrowing, or cutbacks of planned expenditures and deviation of
funds intended for different purposes, undermining macro-economic stability
and budget credibility (IDD and Associates 2005, 18).
Poor communication by donors and among government agencies also undermines
effective resource planning and prioritisation in other ways. A large
share of donor support is provided as tied aid in the form of technical assistance
to ministries, departments and agencies. This aid does not appear in the
national budget and donors do not regularly provide detailed information on
the costs of such projects. In addition, they tend to negotiate directly with the
MDAs supported, often bypassing central ministries. The supported entities
have strong incentives not to communicate all support received directly from
donors to central government agencies, in particular the MoF, as this could
diminish allocations they receive from the national budget. 35 Communication
failures occur in the reverse direction as well, with the consequence that
spending agencies are not informed about funding and donor support available
to them. Thus, the MoF cannot establish a comprehensive picture of the
resources available to each sector and, therefore, cannot ensure that the
budget allocations are in line with the strategic priorities of the MPRSP and
other strategy documents. 36
34 This applies to central and local level. However, while at central level a typical obstacle to
the disbursement of donor funds consists in the government not meeting demanding reporting
requirements, the problems at local level are frequently much more basic. Frequently,
local communities simply fail to meet even simple requirements to contribute own resources
to donor financed development projects such as sand or bricks for the construction
of schools or roads.
35 Formally, all donor activities should be reported to the Department for Aid and Debt Management
within the Ministry of Finance. However, all attempts to establish a comprehensive
aid database have failed so far (Whitworth 2005, 7).
36 This poses serious problems with regard to the availability of funding as well. To access
funding via the Education for All Fast Track Initiative (FTI), at least 20 % percent of a
country’s public spending has to go to education. In Malawi, the sector’s share of the national
budget is only about 12,8 % (2004/2005). One reason is the substantial share received
by the sector off-budget. In order to be eligible for funding from the FTI, it is thus
crucial for Malawi to get this extra-budgetary expenditure on-budget The fact that a donor
agency had to take on the responsibility to compile the required data and prepare the application
for FTI funding is a good indicator for the lack of capacity and possible perverse incentives
in the Ministry of Health.
108 German Development Institute