30 August 2011

Does it Matter if Budget Support Goes Extinct?

Simon Maxwell is worried about budget support going extinct.
Budget support should not be allowed to fall off the agenda. Developing country finance ministers would miss it ... So would development practitioners ... Budget support ... delivers at scale, empowers developing country Governments, reduces transactions costs, and increases accountability.
All of which is true. But also makes the most sense when you are comparing it with "old" aid. Aid projects designed to replace government functions. Budget support is an improvement on these parallel systems, and a better form of government-to-government aid, in large part because it is built on respect for the recipients.

But is the best possible form of aid? I think that two new forms of aid can do better.

Cash-on-delivery is a close relative of budget support, but it does even more for empowerment and respect, as it manages to do away with all the process conditionality required for budget support, by paying only for results. No need to worry about PFM systems. Either the government delivers for its people, or it doesn't, no need for us tell them how to do it.

Cash transfers to individuals goes one step further from respect and empowerment for developing country governments, to respect and empowerment for poor individuals. It seem so obvious, when our goal is to make poor people less poor, to just give them the cash, especially when it is feasible at low overheads (see GiveDirectly) and globally affordable (see Charles Kenny).

Kenny estimates that $100 billion a year in cash transfers to individuals could eradicate extreme poverty.

There are about 1 billion people living in the rich world. So for just one hundred dollars a year each we could eradicate extreme poverty.

Cash-on-delivery and cash transfers also counter the #1 complaint from taxpayers about aid - that it is wasted.

The only trouble with cash-on-delivery and cash transfers? They get rid of the need for development experts.....


Update: Response from Ranil at Aidthoughts here


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