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.
Major development assistance modalities have changed abruptly from general budget support (GBS) to non-GBS instruments but may revert to GBS in the medium term. Project and NGO development assistance is highly fragmented.
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 these 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 successfully do different aid modalities deliver 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?
Activities
Through members of the regional LPAs, the finance theme aims to forge links between RiPPLE research and federal government budget and aid harmonisation processes. This could mean LPA members:
- Taking part in key federal budget processes, e.g. development of budget guidelines, audit processes and budget defence hearings.
- Taking part in analytical work feeding into the budget process e.g. public expenditure reviews.
- Linking into existing donor and NGO networks.
- Taking part in poverty monitoring processes at federal levels.
Case Studies
A working hypothesis for this theme is that long-term sustainable water supply and sanitation services to the poor depend as much on the effectiveness of financing mechanisms as they do on their additionality: more does not necessarily mean better.
Two case studies have been carried out in Benishangul-Gumuz region. Out of the many finance issues raised there, two key issues emerged which both relate to the region not being able to spend its existing resources. Two action research studies were conducted to tackle this:
Improving utilisation rates of channel one funding to the water sector in Benishangul-Gumuz
An action research study to understand factors underlying the low utilisation rates of federally sourced (channel 1) funding in four woredas.
Despite strong commitment from the government, the budget allocated to water has been low compared with other basic service sectors at both federal and regional levels, and is much lower than is required for improving access to safe water. However there remain significant underspends at woreda level.
Initial findings suggest that this is due to several factors including a lack of coordination and structural clarity in the sector, weaknesses in data collection and management, lack of effective monitoring and evaluation, and the prevalence of centralised budget allocations at woreda level.
The study therefore makes the following preliminary recommendations:
- Build capacity of budget decision-makers at regional and woreda level
- Enhance oversight of budget allocations
- Establish mechanisms to ensure that public budget allocations are based on local needs and priorities
- Develop a database of finance and expenditure
- Establish transparent, standardised reporting systems
- Strengthen government financial management systems through a focus on performance, improved monitoring and evaluation systems, clarification of roles and responsibilities and increased transparency around local audit and procurement practices.
Counterpart funding for EWSSP
An action research case study to resolve the sourcing and utilisation of counterpart funding for the World Bank funded Ethiopia Water Supply and Sanitation Project (EWSSP).
The requirement on regions to supply 15% matching funds has been a major bottleneck in accessing and these donor funds effectively, and resolving it is a priority for improving sector service delivery in Benishangul-Gumuz.
First findings of this case study suggest that several factors have hindered the efficient sourcing of matching funds, including poor communication between different government levels and financing channels, low financial management capacity at woreda level (where responsibility for allocating matching funds lies), a lack of clear guidelines for administering matching funds, competition from other sectors and difficulty in obtaining cash contributions from communities.
Recent steps to develop guidelines and harmonise financial channels should lead to improvements, but the study also makes the following preliminary recommendations:
- Allow communities to make contributions in kind as well as cash
- Implement MoUs between sector bureaux and woredas to improve communication
- Allow regions to comment on negotiations with donors
- Establish a mechanism by which the federal government will help fill the budget gap in less populated regions.
Long-term Action Research Studies (LARS)
Building on these case studies, and those conducted under other themes, RiPPLE is currently developing two major long-term action research studies (LARS) which will take place across all three focus regions. One LARS will focus on achieving the Universal Access Plan, and the Finance theme will play a central role in the development and research activities of the study.
Page last updated 13 Sep 2008
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