Evaluation of General Budget Support: Synthesis Report - Belgium

6. Thematic Issues
Political corruption (corruption that is linked to political finance as opposed to corruption for the
purposes of direct personal enrichment, ibid.) may be spurred by electoral competition, even
though, in the long run, democratic accountability is viewed as a safeguard.
Box 6.4: Some Interactions between Aid and Corruption
This box illustrates some of the influences of corruption on aid and vice versa. Aid may be affected by
corruption both directly and indirectly, and the way in which aid is delivered is itself an influence on the
environment for corruption in the recipient country.
Influences of corruption on aid
Corruption can, of course, lead to the direct misuse or diversion of aid funds during programme or project
implementation. But opportunities for corruption can affect every stage of the project cycle from project
selection through design, procurement, implementation, financial management, to evaluation (U4 2005).
Thus, satisfactory audit reports for project aid are not a complete guarantee that all funds have been put
to proper public purposes. For example, the third (procurement) volume of the OECD DAC good practice
guidelines for aid delivery notes:
The impact of corruption in procurement extends considerably further than increasing the cost to government
of particular projects. Comparative research has demonstrated that high levels of corruption work to push
governments to devote a higher proportion of their spending to capital projects, since procurement in those
projects offers the greatest opportunity for public officials and private parties to capture corruption revenues.
In this way, procurement systems that are beset by corruption have a particularly destructive impact on the
effectiveness of public spending since they act to promote excessive public investment at the same time that
they reduce the benefit the country derives from those investments. (OECD DAC 2005e.)
Influences of aid on the environment for corruption
A study of revenue agencies and corruption draws attention to aid agencies who "preach morality but
practice tax avoidance":
One factor that has tended to reduce revenues and created profound distortions in the resource allocation
mechanism of the market system is the tax exemption on transactions associated with foreign development
assistance. (Fjelstad 2005.)
The OECD DAC forum on corruption noted that:
Tied aid creates a non-competitive contracting environment by committing recipients of financial assistance
to specific suppliers from donor countries, increasing the risk of corruption. (OECD DAC 2005a, 14.)
Some side-effects of safeguards
Adoption of separate disbursement systems for aid (for safeguard or other reasons) may undermine
accountability within the government system. Isaksen (2005), drawing on a study of supreme audit
institutions (SAIs) in Malawi, Uganda and Tanzania, reports:
The problem of off-budget donor funds going straight to ministries has remained, making it hard for the audit
institutions to keep track of and audit these expenditures. This has contributed to undermining the authority
of the SAIs.
In several of the study countries it was noted that off-budget funding arrangements and the multiplicity of
non-government disbursement and procurement procedures operating in parallel have tended to weaken
the government systems at the same time as complicating the fiduciary oversight of aid funds.
As with public finance management generally, the DAC Governance Network has noted the limitations of
a "ring-fencing" approach to corruption:
Donor agencies, including the IFIs, have made a number of efforts to protect grant and loan funds from
corruption. At the same time there is a growing realisation that protecting donor funds is of limited use
unless sustainable changes are made to the system and institutions of partner countries. (OECD DAC
2003a.)
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