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A Way to Help Governments Reduce Poverty

How budget support has worked.

7 January 2008

Rwanda | Ethiopia | Vietnam | A Way to Help Governments Reduce Poverty

Mozambique

Nurse in Mozambique In 1992 Mozambique emerged from nearly three decades of conflict. Since then, it has made huge strides in improving the lives of its citizens and the health of its economy. Growth has averaged 8% over the last 10 years and poverty fell by 15% between 1997 and 2003.

However, significant challenges remain. At least 16% of the population is HIV positive. 1 million children are out of school. Much more needs to be done to provide essential services to all areas of the country and to the poorest people. DFID has provided budget support - almost £200 million since 2001 - in support of the Government of Mozambique's Poverty Reduction Strategy (PARPA), agreed in 2001. This has gone towards building the Government's capacity to implement poverty reduction programmes and meet its growth and poverty reduction goals.

Here are some examples of what DFID’s support has helped achieve:

Poverty has been reduced, from 69% in 1997 to 54% in 2003. The Government of Mozambique aims to reduce poverty to 44% in 2009, just 1% short of the 2015 MDG target ;
Access to basic services such as schools, health clinics and clean drinking water, has been extended;
Between 1992 and 2007, the number of pupils in primary schools tripled from 1.3 million to over 4.5 million in 2007. In secondary schools, the number has increased from 45,000 to 245,000;
Donors are working closer together and with the Government of Mozambique in setting and funding poverty-focused priorities;
Budget support has helped stabilise the economy and government spending which has helped increase the average wage for workers.

Vietnam

Scool child in Vietnam Vietnam has taken a strong lead itself in reducing poverty. It has experienced strong economic growth of 7-8% per year and poverty has halved in the past ten years. This means that the country is on course to become a middle income country by 2012. Five of the Millennium Development Goals [link to DFID site on MDGs] have already been achieved. Only the targets for HIV and AIDS, sanitation and the political representation of women remain off-track.

Despite this progress, inequality between ethnic backgrounds is growing, 14 million people are still poor and nearly half the population survives on less than two dollars a day. Corruption is also a serious threat to continued development. DFID has been supporting the Government of Vietnam in tackling these problems and since 2003 has provided £70m of general budget support and £28.5m of sector budget support (sector budget support is provided to go towards a specific sector, like health or education, to achieve particular improvements.)

With DFID’s support, the Vietnamese government has achieved the following:

A stable economy and growth of government revenue at 10% a year while maintaining state budget deficit below 5% of GDP;
Nearly 8 million people lifted out of poverty between 2002 and 2004 out of a population of approximately 80 million;
Primary school enrolment rates increased to 94%, i.e. 150,000 more children in the poorest areas and population groups in school, and 4,000 new primary schools now in operation;
2 million more people have access to clean drinking water;
7 million poor people now have free health insurance.

Rwanda

Scool children in Rwanda After the 1994 genocide which killed one million people, Rwanda had a collapsed state and economy. Infrastructure was destroyed and much of the skilled labour force was dead or had left the country. 3 million refugees were in exile after four years of conflict.

Since then, much has changed: poverty has fallen from 70% in 1994 to 57% now, and economic growth has averaged 8% since the genocide (one of the highest rates in Africa). But Rwanda still faces regional instability, political and social fragility, skills shortages, limited markets and trade links, and high levels of inequality. It suffers also from environmental degradation and the highest population density in Africa. 37% of people live in extreme poverty.

DFID was the first donor to provide budget support and has given £210 million in PRBS since then. This has helped achieve:

The re-building of the state immediately after the genocide to build basic security and justice systems;
Free primary education was introduced in 2004, and enrolment has increased by 13% in the last three years;
Increased spending on poverty reduction by the Rwandan Government e.g. education and health spending constituted 28% of the budget in 2007 (up from 22% in 2005);
A more stabilised economy and a new national strategy focused on sustainable growth and eliminating extreme poverty.

Ethiopia

Ethiopia is one of the poorest countries in the world. Of its population of about 77 million people:

Over 60 million (81%) live on less than $2 a day;
31 million (41%) live on less than half a dollar a day;
Around 10 million people are at risk of starvation every year.

Ethiopia -Making improvements to water supply The DFID programme has grown from about £7m in 1999/2000 to £130m this year. In 2006 we launched a new programme of sector budget support (sector budget support goes towards a specific sector, like health or education, to achieve particular improvements) known as the Protection of Basic Services Programme. This helps ensure that poor people in Ethiopia will continue to have access to basic services such as education, health, agricultural services, water and sanitation despite the withdrawal of general budget support in late 2005 following election-related violence. This programme specifies that DFID resources may be spent only on basic services, i.e. water, health, education and agricultural services, and must be additional to the Government’s own resources.

With sector budget support there is even tighter scrutiny over the money given and how it is spent, and the government has to provide more timely and accurate data on spending. Furthermore there are measures included in it to make the government more accountable to its citizens.

As a result, Ethiopia has nearly tripled spending on the poor between 2002 and 2006 – allocating over 60% of its budget to poverty-targeted sectors. Some examples of the results of DFID’s support are: