Financing theme

Ethiopia is the most aid-dependent country in the world, receiving around $1.9 billion in official assistance in 2005. It is one of the largest per capita recipients of emergency aid (second to Sudan) and yet one of the lowest per capita recipients of development aid in Africa. Its many external sources of assistance include loans and grants from development banks, and grants from bilateral agencies, the UN system, and international and local NGOs. Ethiopia's federal structure, its process of fiscal decentralisation, its high aid-dependence and the volatility of aid modalities result in complex, unsystematic and fragmented financing mechanisms for service delivery. Multiple funding sources are often governed by distinct, unconnected, parallel processes each with its own cycle of fund raising, requests, allocation and reporting. Operating in this complex funding environment the capacity of Federal, regional and woreda administrations are further undermined by a limited banking system, an almost non-existent private sector and an onerous bureaucracy.

Our Aims

Understanding and improving the ways in which multiple streams of development finance are integrated to respond to local needs and demands is central to the problem of attaining sustainable and equitable WSS service delivery. Key questions under the Finance theme are:

  • How successful are different aid modalities in delivering WSS?
  • How can sector coordination, performance monitoring be improved?
  • What financing mechanisms are most effective at promoting poverty alleviation, pro-poor growth and equity in different socio-economic contexts?


The financing study, 'Matching funds allocation in the Ethiopian Water Supply and Sanitation Project (EWSSP): A case study in Benishangul-Gumuz regional state'  which was carried out in Benishangul-Gumuz, looked at problems in sourcing government matching fund to development assistance and focused on identifying bottlenecks that created problems to allocate matching fund (15% of total project expenditure) from the government to the WB supported Ethiopian Water Supply and Sanitation Project and also in suggesting possible recourse measures. The findings showed that poor communication between government financing ministries that are expected to provide the matching fund and the water sector ministries that directly receive the development assistance finance was one of the problems. Additional problems identified were poor capacity of communities to raise cash contributions for the matching fund and the relatively sparse population that reduces the number of contributions that can be made. The recourse measures suggested were changing community contributions from cash to in-kind; counting local government overhead costs as contributions to the matching fund; more integration between sectors; speeding up the process to harmonizing financing in the sector wide approach; participation of regions when negotiating matching funds to development assistance and better support from the federal government to less populated regions.

Page last updated 28 Aug 2009