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138 Diagnosing Corruption in Ethiopia
Planning, Budgeting, and Transfers
Grand corruption—the misuse of vast amounts of public sector funds by
a relatively small number of officials—is most likely to occur during the
planning and budgeting processes associated with project and sector
investments. Corrupt practices along this portion of the value chain may
include the following (Plummer and Cross 2007):
• Favoring of large, capital-intensive works, where opportunities for bribery
and rent seeking are greatest
• Manipulation of budgets, particularly where there is a disconnect
between policy objectives and planning and implementation
• Corruption in local budget management (for example, fraud or falsification
of accounts)
• Corruption in fund allocation and transfers (for example, through
approval systems that operate between ministries and line departments).
Risk: low to medium. In poor countries, where the aid budget is a significant
contributor of finance to the sector, the value chain is strongly
influenced by the type of financing and conditions of use. A number of
studies have highlighted the risk of corruption in donor-financed, poverty-focused
projects—for example, where aid harmonization rather than
spending efficiency becomes the key factor driving structural shifts in
poverty reduction strategies. Indeed, the focus on budget support and
alignment may provide a much greater degree of discretion, or fiduciary
risk, in budget allocation and spending than traditional project-based
investment.
In Ethiopia, sector-level planning, budgeting, and financial transfers
have changed significantly over recent years—reflecting shifts in both
government policy (particularly around decentralization and revisions
to the UAP) and donor financing. Such major changes might be
expected to increase the risk of corruption in sector budgeting and
transfers as new systems “bed in,” yet perceptions from Ethiopia indicate
that corruption in these areas is viewed as generally low-risk, albeit with
some variation among regions. Table 4.2 summarizes the findings of the
study team and views of workshop participants about sector planning,
budgeting, and fiscal transfer issues, highlighting moderate risk only in
relation to local-level procurement and the use and abuse of monitoring
information.