Jonathan Glennie 28 June 2011
Weaning countries off aidAid dependency can only be reduced if financial resources are found elsewhere. Uganda, for example, is using aid to improve tax collection so it will rely less on funding from outside donors
A truck offloads freshly picked coffee berries at a processing factory in Mbarara, western Uganda. Tax revenue in the country has increased as a proportion of government expenditure from 55.2% in 2005 to 67.9% in 2010. Photograph: Trevor Snapp/Getty Images
It is a positive sign that major western NGOs are beginning to talk about the problem of aid dependence and the need for exit strategies from aid. They are doing no more than responding to the concerns expressed for some years by their developing world partners and diaspora in the west.
But as they seek to engage the public at a slightly deeper level than just "aid is good", they need to be careful that their message is not commandeered by a simplistic, often rightwing, but now fairly populist agenda that seeks only to reduce the amount of money rich countries spend on global issues.
Reducing aid dependence is not the same thing as reducing aid. Aid dependence can be reduced without reducing aid (if other sources of money increase). And reducing aid doesn't mean reducing aid dependence – it might well mean the opposite. It is the dependence not the aid that is the problem.
Dependency on aid can only be reduced if the equivalent financial resources (and more) are found elsewhere. That requires action at the international level on issues such as trade policy, illegal capital flight and commodity pricing. And at the national level it requires a coherent set of policies to gradually increase resource mobilisation from untapped areas of the economy.
Allen Kagina, commissioner general at the Uganda Revenue Authority, came to the Overseas Development Institute (ODI) this month to give a presentation on the need to transform tax collection to, in her words, "wean Uganda off aid". Her message was clear: we need to use aid to support processes of improved tax collection, rather than allow it to substitute for the mobilising of domestic resources.
As an economy grows, as Uganda's is, a country will gradually rely less on aid as a proportion of gross national income. But that doesn't necessarily mean the government sector will reduce its dependency on aid. Some countries receive little aid as a proportion of GNI, but maintain heavy reliance on aid inputs in social and other sectors because tough political decisions on tax are not made.
The challenges in Uganda (and elsewhere) are many, and include, in Kagina's analysis: the difficulty of taxing the informal sector; the limited capacity of fiscal administrations; the slow pace of adoption of better IT; a low tax base coupled with tax evasion and fraud; the disproportional representation of some stakeholders in the tax base through the use of incentives; and a low savings ratio relative to investment requirements. So there are no easy answers.
Nevertheless, according to Kagina (who says she would welcome independent research to verify this, if anyone is interested), tax revenue has increased as a proportion of government expenditure from 55.2% in 2005 to 67.9% in 2010. Some successful reforms have included the introduction of one-stop border posts that harmonise immigration procedures, reduce transaction costs and duplication of efforts, enhance border security and increase revenue.
Kagina argues that domestic resource mobilisation is "potentially the biggest source of long-term financing for sustainable development and it is the lifeblood of all state governance, such as the provision of public goods and services". Aid still fills a gap, so rather than calling for an abrupt end to it, she asks: Is foreign aid to Africa promoting the strengthening of tax administration or simply having a substitution effect?
Crucially, she notes that there has been limited support from donors on tax matters, but where it has existed, it has helped. Since 1990, 15 African countries have formed revenue authorities with support from the IMF and the World Bank, including Uganda, which set up its revenue authority with the UK's Department for International Development (DfID) support in 1991.
Kagina wants to persuade donors to reorient their efforts towards always having an endgame in mind. In her view, this means spending aid on revenue reform and the productive sectors of the economy. While there is always a place for trying to influence donor decisions, we have learned the hard way how difficult that can be – domestic considerations weigh heavier in donor minds than developmental priorities.
Ultimately, Kagina's success will depend on how well she is able to manage the complex political maze she is navigating in Uganda, distinguishing the possible from the optimal, and managing change in a difficult environment. The slogan she has given her department is: "One team, one dream".
Regardless of specific countries reducing their dependence on aid, which is the objective all countries should be striving for, spending on global public goods by rich countries – and eventually by all countries – should continue to rise as a proportion of our national income, as an evolving world order needs money to run effectively, safely, and sustainably. So this is no appeasement of the rightwing critics of foreign spending. It is progressive development theory fit for the 21st century.
http://www.guardian.co.uk/global-development/poverty-matters/2011/jun/28/weaning-countries-off-aid
Weaning countries off aidAid dependency can only be reduced if financial resources are found elsewhere. Uganda, for example, is using aid to improve tax collection so it will rely less on funding from outside donors
A truck offloads freshly picked coffee berries at a processing factory in Mbarara, western Uganda. Tax revenue in the country has increased as a proportion of government expenditure from 55.2% in 2005 to 67.9% in 2010. Photograph: Trevor Snapp/Getty ImagesIt is a positive sign that major western NGOs are beginning to talk about the problem of aid dependence and the need for exit strategies from aid. They are doing no more than responding to the concerns expressed for some years by their developing world partners and diaspora in the west.
But as they seek to engage the public at a slightly deeper level than just "aid is good", they need to be careful that their message is not commandeered by a simplistic, often rightwing, but now fairly populist agenda that seeks only to reduce the amount of money rich countries spend on global issues.
Reducing aid dependence is not the same thing as reducing aid. Aid dependence can be reduced without reducing aid (if other sources of money increase). And reducing aid doesn't mean reducing aid dependence – it might well mean the opposite. It is the dependence not the aid that is the problem.
Dependency on aid can only be reduced if the equivalent financial resources (and more) are found elsewhere. That requires action at the international level on issues such as trade policy, illegal capital flight and commodity pricing. And at the national level it requires a coherent set of policies to gradually increase resource mobilisation from untapped areas of the economy.
Allen Kagina, commissioner general at the Uganda Revenue Authority, came to the Overseas Development Institute (ODI) this month to give a presentation on the need to transform tax collection to, in her words, "wean Uganda off aid". Her message was clear: we need to use aid to support processes of improved tax collection, rather than allow it to substitute for the mobilising of domestic resources.
As an economy grows, as Uganda's is, a country will gradually rely less on aid as a proportion of gross national income. But that doesn't necessarily mean the government sector will reduce its dependency on aid. Some countries receive little aid as a proportion of GNI, but maintain heavy reliance on aid inputs in social and other sectors because tough political decisions on tax are not made.
The challenges in Uganda (and elsewhere) are many, and include, in Kagina's analysis: the difficulty of taxing the informal sector; the limited capacity of fiscal administrations; the slow pace of adoption of better IT; a low tax base coupled with tax evasion and fraud; the disproportional representation of some stakeholders in the tax base through the use of incentives; and a low savings ratio relative to investment requirements. So there are no easy answers.
Nevertheless, according to Kagina (who says she would welcome independent research to verify this, if anyone is interested), tax revenue has increased as a proportion of government expenditure from 55.2% in 2005 to 67.9% in 2010. Some successful reforms have included the introduction of one-stop border posts that harmonise immigration procedures, reduce transaction costs and duplication of efforts, enhance border security and increase revenue.
Kagina argues that domestic resource mobilisation is "potentially the biggest source of long-term financing for sustainable development and it is the lifeblood of all state governance, such as the provision of public goods and services". Aid still fills a gap, so rather than calling for an abrupt end to it, she asks: Is foreign aid to Africa promoting the strengthening of tax administration or simply having a substitution effect?
Crucially, she notes that there has been limited support from donors on tax matters, but where it has existed, it has helped. Since 1990, 15 African countries have formed revenue authorities with support from the IMF and the World Bank, including Uganda, which set up its revenue authority with the UK's Department for International Development (DfID) support in 1991.
Kagina wants to persuade donors to reorient their efforts towards always having an endgame in mind. In her view, this means spending aid on revenue reform and the productive sectors of the economy. While there is always a place for trying to influence donor decisions, we have learned the hard way how difficult that can be – domestic considerations weigh heavier in donor minds than developmental priorities.
Ultimately, Kagina's success will depend on how well she is able to manage the complex political maze she is navigating in Uganda, distinguishing the possible from the optimal, and managing change in a difficult environment. The slogan she has given her department is: "One team, one dream".
Regardless of specific countries reducing their dependence on aid, which is the objective all countries should be striving for, spending on global public goods by rich countries – and eventually by all countries – should continue to rise as a proportion of our national income, as an evolving world order needs money to run effectively, safely, and sustainably. So this is no appeasement of the rightwing critics of foreign spending. It is progressive development theory fit for the 21st century.
http://www.guardian.co.uk/global-development/poverty-matters/2011/jun/28/weaning-countries-off-aid
No comments:
Post a Comment