Parliaments, budgets and aid: Accountability and effectiveness

16 May 2007 12:00 - 13:30 GMT+00
Public event

Speakers:
Martin Powell
, World Development Movement and International Parliamentarians’ Petition
Joachim Wehner, Lecturer in public choice and public policy, Government Department, London School of Economics

Discussant:

Edward Leigh MP, Chair, Public Accounts Committee

Chair:

Sally Keeble MP, Secretary, Africa APPG

Description

The third meeting in this series asked what role parliaments can and should play in overseeing budgets and in enhancing aid effectiveness. It examineed how relations with donors and international financial institutions impact on the ability of parliaments to exercise effective budget/aid oversight. It also looked at how civil society organisations have worked with parliaments to help them to exercise such oversight.

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Boothroyd Room

Meeting Summary

1. Sally Keeble MP (Secretary, Africa APPG) began by welcoming everyone to the meeting, and by welcoming the opportunity to discuss the potential contribution of parliaments in developing countries to poverty reduction, a crucial but complex issue. She also began by highlighting the aim of this the third meeting in the Parliaments and Development Meeting Series: to ask what role parliaments can and should play in overseeing budgets and in enhancing aid effectiveness.

2. Joachim Wehner gave the first presentation, entitled ‘Legislative Financial Security (LFS) in Developing Countries’. The presentation was based on a larger report Joachim has recently completed which was commissioned by the UK Department for International Development (DFID). LFS is a very important issue in the context of budget support, for two main reasons:
• since DFID (and many other donors) are providing aid with fewer conditions attached, there is a need to make sure that the aid is used in a pro-poor way, and one way to do this is by strengthening accountability mechanisms in recipient countries;
• as a way of reducing fiduciary risk, and to ensure that aid is used in ways which are consistent with UK tax-payers’ interests.

3. The remainder of the presentation focused on two main issues, namely a) what role do parliaments play in budgeting process; and b) how can donors strengthen the role that they play. Under the first issue, Joachim identified four stages of the budgeting process, namely drafting, approval, execution and audit. The second and fourth stages (approval and audit) are the most obvious ones in which parliaments become involved. However, it was important to note that budgeting is a process that goes beyond these two stages, and the challenge is to ensure that parliaments have continuous oversight, i.e. through all four stages.

4. Joachim then discussed some of the challenges facing parliaments in poor countries. These include:

• parliaments find it hard to engage with strategic priority-setting exercises, such as the Poverty Reduction Strategy (PRS) process
• they are often too weak politically to play a role in the approval stage of the budgeting process, for example due to one-party dominance;
• budgets are often in effect meaningless documents, due to the large gap between approved and actual budgets;
• ineffective audit because of capacity constraints (e.g. a lack of trained accountants);
• lack of transparency, and in particular restricted access to budget information.

On the last point, a recent study shows a clear positive correlation between estimates of budget transparency and GDP per capita – evidence that access to budget information is much lower in poorer countries.

5. Joachim then discussed the costs and benefits of greater legislative involvement in the budgeting process. The benefits clearly come from things like increased accountability, wider participation in budgeting decisions, higher demand for fiscal information, and so on. However, strong legislatures can also pose a fiscal risk if they are too powerful: in particular, they may threaten fiscal discipline. This is certainly a pervasive view in many of the International Financial Institutions (IFIs). But this risk can be offset in various ways, for example through fiscal rules which must be adhered to, or through limited powers of amendment. Evidence for 76 countries confirms that these sorts of policies work – for example, countries in which parliaments are subject to limited powers of amendment have higher levels of fiscal discipline.

6. Joachim then discussed four different models of financial scrutiny of budgets, as follows:
• the status quo, with more information being provided to parliaments, but with parliaments continuing to be side-lined in decision-making;
• a budget-making legislature (e.g. US Congress), with an elaborate committee structure;
• a legislature disengaged from in-depth scrutiny (or approval), which focuses much more on ex-post performance assessment (e.g. the UK parliament)
• the co-operative approach to budget making between legislature and executive (e.g. Sweden).

7. In terms of organisations involved in strengthening parliamentary scrutiny of the budget, a survey undertaken by Joachim with colleagues showed that around 70 different organisations are active in this area. Africa has been the main focus of this work, but various types of activities are involved (e.g. budget analysis units, study trips, and written guidelines). DFID’s largest project in this area is in Vietnam – at around £3m over 5 years – which is still small compared to other sorts of projects.

7. Finally, in terms of what donors can do to strengthen legislative scrutiny, Joachim stressed the importance of:
• effective financial scrutiny being crucial for the success of budget support;
• the importance of a continuous oversight process;
• the additional challenges for legislatures in poor countries;
• that support to financial scrutiny by legislatures is currently low (relatively few organisations are involved, with relatively small sums of money), implying that there are opportunities for scaling up.

8. Martin Powell began by bringing attention to the recent WDM papers entitled “Denying Democracy: How the IMF and World Bank take power from poor people”, and “Building scrutiny of the World Bank and International Monetary Fund: A toolkit for legislators and those who work with them”.

9. Martin discussed the relationship that the IFIs have with the executive in developing countries, and how this strongly affects the relationship between parliaments and the executive. Conditionality clearly affects the budget process, in that some of the basic decisions are de-linked from the democratic decision-making process. For members of the legislature in a typical developing country, it is extremely difficult to get to grips with the workings of the IFIs and the way in which they interact with the executive.

10. Martin then discussed the issue of conditionality in more detail, defined as the use of financial incentives by donors to promote the adoption of specific policies by recipient countries. One element of this is selectivity, which involves allocating more aid to countries in which existing policies are deemed to be more appropriate. This is reflected most strongly in the use of Country Policy and Institutional Assessment (CPIA) scores by the World Bank to determine the allocation of concessional loans and grants among low-income countries. Between 1999 and 2003, 90% of such flows when to countries with above average CPIA scores. It was certainly important for parliamentarians to be aware of the workings of the CPIA scoring process, and what particular score is attached to the country.

11. Beyond selectivity, the IFIs use conditionality in broader and more pervasive ways. These provide barriers to parliamentarians getting involved in monitoring the budget process. Legislatures can’t often get hold of relevant documents and/or financial agreements until they are finalised and signed.

12. It is very difficult for any single legislator to get involved in the process of monitoring IFIs and their relationship with the executive if they act alone. It clearly makes sense to link up and also to link up with civil society organisations (CSOs). CSOs can provide parliamentarians with much needed information and analysis, as well as extra political influence. They can also provide continuity in the scrutiny process in situations in which parliamentarians change regularly following election. It is estimated for example that up to 70% of MPs in Nigeria may change following the recent elections.

13. Martin then provided a series of successful examples of parliamentarians and CSOs working together. These were:
• the Mexico Equipo Pueblo initiative, which has been providing independent analysis on the impact of structural adjustment programmes;
• the Malawi Parliamentary Committee on the IFIs, the aim of which is to enhance legislative oversight and scruinty of IFIs (and which can access bills before they are presented to parliament, allowing more thorough investigation);
• the Parliamentary Front in Brazil, which is working with the Brazilian Congress on issues related to IFIs, including working towards an amendment to the Brailian Constitution to make the relationship between exec and IFIs more open to legislative oversight.
• the Debt Caucus in Indonesia, which focuses on raising awareness around loans, debts and borrowing strategy and how the government is managing this.

14. Martin’s final point was that access to information is crucial. In this context, local Freedom on Information (FoI) legislation can play an important role. The IFIs have not traditionally been keen on this, but there are examples where the World Bank has been pressurised to adhere to local FoI law (e.g. in India). DFID could and should also do more to make publicly available information on the types of conditions it attaches to its aid operations, including those which it does jointly with the IFIs.

15. Edward Leigh MP, the Chair of the UK’s Public Accounts Committee, then gave a presentation on his practical experience of holding the UK government to account. He said that scrutiny of the budget in the UK is very weak, in comparison with the case in the US for example. However, we do have a strong track record of performance assessment, for example through the National Audit Office. Most staff at the NAO work on value for money issues, which is in turn fed through to the Public Accounts Committee. Importantly, neither the NAO or the PAC is involved in policy, or in politics – it is simply about tackling waste and efficiency. The director of NAO is appointed for life by parliament, which is also important. However, the PAC has no formal power – it can only put indirect pressure on the government, through the media for example. The UK experience with performance assessment can offer useful lessons to developing countries seeking to raise legislative financial scrutiny. He argued that performance assessment might be a more feasible option than complicated US-style scrutiny of the budget.


Questions and discussion

16. Edward Leigh was asked a) what he thought about possible independent evaluation of DFID, perhaps along the lines of OFSTED evaluation of education or Her Majesty’s Inspectorate of Prisons. He said he didn’t think these models would be good ones for DFID, and DFID is already monitored closely by the Treasury and the National Audit Office; he doubted therefore that another evaluation body was needed. In his view, bilateral aid is very efficient and effective, in comparison with say EC aid.

17. Edward Leigh was also asked about NAO/PAC value for money reports on DFID, which are sometimes perceived as being too “gentle” or insufficiently critical of DFID. In reply, he agreed that there were very few instances of waste or inefficiency encountered at DFID. However, this perhaps reflects the fact that it is much more difficult for a UK-based body such as the NAO to monitor what DFID is doing around the world. It was also confirmed that the NAO website lists forthcoming evaluations of DFID it is carrying out.

18. Edward Leigh was also asked about the apparent inconsistency between giving large amounts of aid to the executive on the one hand, and trying to strengthen parliament on the other hand? In other words, parliaments in most developing countries are not parliaments in the real sense, i.e. representatives of the people who are paying tax-payers. Shouldn’t it therefore be the job of DFID to monitor how aid is spent? He expressed sympathy with this argument, although it did depend on whether aid money was channelled through the government or through alternative channels (e.g. NGOs).

19. On this issue, Martin argued that parliaments alone are clearly not the solution; the importance of CSOs, the media and so on needs to be recognised. It also needed to recognised that achieving the structural changes to allow real accountability will be difficult, and not all MPs will be in favour of this (e.g. those who feel they may soon be in the executive).

20. Joachim was asked what DFID were planning to do with his Report. He replied that it would feed into a multi-donor meeting in Brussels next week on strengthening legislative financial scrutiny. Although hard to say, he fully expected donors to take up the issue more; to date there has been a lot of emphasis by donors on the role of CSOs in strengthening accountability, but this role is more naturally carried out by parliaments.

21. Joachim also agreed that it was a mistake to equate a strong parliament with an oppositional parliament. Often the more antagonistic parliaments do less effective monitoring.

22. A participant informed the audience about the AWEPA programme, based in Amsterdam, the aim of which is to support parliaments in Africa, and to keep Africa on the political agenda in Europe. It is currently working on a Parliamentary ODA Oversight Programme, jointly with NEPAD.

23. Martin expressed concern at the idea that parliaments might undermine fiscal discipline. If this was the case, he argued that a strong parliament might be more important than fiscal discipline. Joachim argued that fiscal discipline was extremely important for development and not to be undermined. The importance of budget scrutiny lies in monitoring priorities and efficiency, rather than about relaxing discipline.

24. A final point raised was, given that developing countries have very limited resources for strengthening parliaments, what would be the one thing they could do to strengthen their activities? Martin replied that it would be to get donors to be truly transparent, in terms of the information they make available to the public. Joachim felt this had to be demand-led and would vary from country to country.

25. Finally, Sally Keeble thanked the speakers for a very stimulating discussion.

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