February 10, 2011 § Leave a comment
Does Aid actually lead to better governance? This theory is not fully developed although there are many studies showing a strong correlation between these two concepts. There are some potentially intuitive facts that might suggest a relationship and the current aid regime is based on this fact. It seems obvious that a struggling Nation might be helped if she is able to secure external funding in all its possibilities, whether the system is well governed or otherwise. Some theories actually show significant improvements in governance in countries with aid as a major share of the public budget, Ghana is such an example, while other realities suggest a negative correlation, in the case of Zaira and Tanzania. ¨
External funding is a reality for many nations and even more so in Africa and it is important to study this sector. Aid can be used to “improve the quality of civil service, strengthen policy and planning capacity, and establish strong central institutions” (Brautigam and Knack, 2004). However, research shows that “higher aid levels are associated with severe corruption” and that aid could weaken governmental accountability, “weakens state bureaucracies of recipient governments, and might be a major source of rents”. So it is perhaps rational to conclude that Aid is both good and bad.
The Millennium Development Goals are the international set of goals to systematically halve poverty in 5 years. 3 out of the 8 goals are explicitly health related. Hence one can conclude that extensive interventions are necessary for achieving the MDG within the allotted time frame. These indispensable interventions require large increases in the current expenditures on health from all financing sources within the health sector. The obvious failure to make health a priority, in funding, over the years could possibly explain why developing countries have such dire health outcomes. Researchers have made the claim that the “fundamental constraint on equitable growth in Sub Saharan Africa”, the poorest region in the world, “is the failure of domestic institutions as well as the global governance system to bring economic development to the masses”. The demand for additional resources comes from the developing world and these resources are often supplied in the forms of ODA (official development assistant), foreign direct investments, and other multilateral and bilateral aid.
The World Health Organizations Commission on Macroeconomics and Health reported in 2001, that additional funds to the tune of $40 billion to $52 billion is needed for developing countries be able to scale up services enough to achieve the MDGs in 5 years. Various other empirical studies predict a need of $15 billion annually (World Bank 2006) and UNDP estimates a sum of $189 billion by 2015. Although the actual numbers reported varies by study and methodology, most economist and development experts express the need for major increases in funding from external partners and the governments of these developing nations as well.
Before increasing funding to developing countries, it is important to evaluate the current regime of external aid. The World Bank reports “Development assistance for health has risen steadily since 1990 from about $2 billion to more than $10 billion in 2003 (World Bank 2006). Also the main actors in international aid have changed from only bilateral and multilateral sources to private partnerships between philanthropic organizations, such as; the global funds to fights AIDS, Roll back malaria initiatives and others. These organizations` contributions to external financing were at 15% and 20% of world total in 2002 and 2003 respectively, the World Bank reports.
However, there are certain negative externalities as a result of the current regime of external financing for health systems. Factors such as volatility, fungibility, non-predictability, no oversight, and or inefficient monitoring of the flows of resources are potential factors leading to inefficiency. Also, the issue of hidden subsidies for domestic firms in drug and equipment procurements often proves inefficient for the receiving nations. The focus on funding on vertical diseases and the scattered nature of external intervention often leads to lower adaptability and decreasing capacity of the health systems to fulfill their mandates. Collier and Clemenson expressed that developed countries must “avoid the tying of aid that reduces the true value of the aid to the recipient (Collier, 1993, Clemesn et al., 2004, UNMP).
Improving the status quo in funding for health is of utmost importance simply because funding for health has wide ranging results. When aid fails, people die. Hoffman and Gibson (2005) argued that the source of revenue affects the level of fiscal accountability within a local government, and that careful attention must be paid to this when “designing policies to enhance local government capacity”. The supply of aid is an international public good and should be subjected to the same level of monitoring and tracking that such sources of revenue are subjected to. The lack of effective self-evaluation by the intermediaries has inevitably produced unsatisfactory results that are decried widely. And such ineffective governance of a public good often leads to dire results.