Accounting for bilateral development aid

Case study of sectoral budget support for Uganda

The Netherlands Court of Audit has investigated the accounts kept for sectoral budget support, a form of bilateral development aid. We analysed the international agreements and the Dutch policy on development cooperation as part of a case study of Uganda. Our audit considered how the state secretary accounted for Dutch budget support and considered the cooperation with other donor countries and the role of their supreme audit institutions.

Conclusions

Our case study found that the countries that provided budget support to Uganda had correctly implemented the Paris/Accra/Busan Declaration, a declaration on effective and transparent development aid, and had taken account of donor harmonisation and mutual accountability. Before providing the support, the donor countries described the amounts concerned, the effects all countries expected from the support and their accounting and reporting requirements. In practice, however, donor countries, including the Netherlands, set additional requirements on the provision of budget support and – often under pressure from their parliaments – demand interim and additional accounting information. If these demands are not met, they sometimes suspend payments without consulting their fellow donor countries.

Recommendations

The House of Representatives and the State Secretary for Foreign Affairs should clearly and consistently explain from the outset how recipient countries must account for their use of the budget support they receive from the Netherlands. The accounts provide the Dutch government and the House with an insight into the way in which developing countries use this form of aid.

Making additional requirements on budget support and demanding additional accounting information is not conducive to predictability and mutual accountability. We think both the government and parliament should exercise a certain degree of caution before requesting interim accounting information from partner countries.

Response

The State Secretary for Foreign Affair accepts our finding that tension can arise between the need for stable funding and the need for domestic accountability. In his opinion, the Netherlands' approach to budget support already agrees with our conclusion on how the tension should be managed. However, the Netherlands has suspended budget support, not because the development outputs are inadequate but because the underlying principles (human rights, democratic principles, no fraud or corruption) are not being respected.

Court of Audit's afterword

The state secretary does not consider certain aspects of our audit. Important steps have been taken in the field of donor harmonisation but the Uganda case illustrates that more still needs to be done. Mutual accountability is also far from complete. We urged donor countries to exercise caution before asking for additional interim accounting information. The minister does not refer to this in his response.