Friday, November 12, 2010

Disbursement vs. Expenditure

There’s a fund in Southern Sudan which is something everyone calls a ‘pooled fund’ and that means that instead of donors giving their money to whatever they want they put it into a big fund that is run by the government and the UN. The problem with this particular pooled fund is that it’s been badly managed and manipulated by the powers that be and so has actually delivered practically nothing. This is nothing surprising here where funds frequently don’t actually disburse money that has been committed to the people that need it. It sits in bank accounts in New York, DC, and Nairobi and accumulates interest (to the tune of $1 million dollars in the case of this fund) and no one is really the wiser nor upset by the matter.

Which makes me ask: why? And that niggling question led me to think about the economics of aid about which already volumes have been written so I won’t bore you with too many details however, if we think of aid as an economic transaction where someone is giving money in expectation of a good or service to be delivered aid might be one of the only transactions where the person giving the money (eg. paying for the service) is not the one who receives the benefit of the service. So, unlike in a standard transaction where you want a mobile phone, you save your money and go buy a mobile phone, and then you utilize that mobile phone – where you are both paying for the service and receiving the benefit - aid works in a completely different way. Donors (and you the taxpayers behind them, or the churches, etc.) pay for a good/service that they will not receive benefit from and so seem less inclined to ensure/care that the benefit is actually received.

Think of it this way. If you had $60 million and you wanted to spend that on a road, a couple of radio stations, and some police stations in your neighbourhood because you have crappy roads, no communications, and no police and you gave the money to someone to do that for you and three years later you still had no road, no radio stations and no police stations that might upset you a little bit. You might even sue the contractors/companies/whatever that you gave the money to to build those things.

But aid doesn’t work that way. The people who should receive the benefit of the $60 million in roads, radio stations, and police stations haven’t a clue that this service has been bought for them. And their government leaders who do have to negotiate payments from donors and the political machinations of donor governments and bureaucratic hoops are incredibly patient while doing so because they act as if the money isn’t theirs. Donors rarely really let go of their money once it’s given and governments/communities treat it as a gift when it’s received. And so you have hundreds of millions of dollars sitting in bank accounts all over the world waiting for enough momentum to get it out.

But once it does get out it’s seldom better because donors get caught in the disbursement vs. expenditure trap. What they really care about is disbursement (did the money get moved off our books on to someone elses so that we can say that the money has been spent without actually lying?) and what they should care about is expenditure (did the money that was moved off our books actually do what it was intended to? Have people received benefit and services from that money?). I cannot number the amount of meetings I have sat through where the discussions of disbursements go on endlessly – disbursement rates, disbursement speed, etc. But expenditure is rarely ever mentioned which means that monitoring and evaluation is rarely ever mentioned because in order to have something to monitor or evaluate you have to have provided a good or service in the first place.

And all of this goes on, under-the-radar, unnoticed and unreported in probably every country that receives anything substantially in the way of aid. 'Oh, it's complicated,' they say. 'Oh, it's not that simple,' they say. But I kinda think I actually do understand and it makes me wish that the people who were supposed to receive the benefit of aid would behave more like you would if you paid for a mobile phone but never received it.

P.S. I realize that I am an incredibly boring person these days. But you fill your days with meetings on disbursements and then we'll talk about how exciting your blog is. ;)

4 comments:

Roving Bandit said...

Exactly. Which is why we should cut all the middlemen. Go direct to those people we want to give aid to and give it to them. Let them choose what they want to spend it on. Let them make sure they actually get what they spend the money on.

David Cuthbert said...

I had a similar discussion in the last year or so with someone about rich donors. "Bill Gates could cure X if he just wrote a check for $Y billion out to Z!"

Unfortunately, that assumes human intelligence and discovery scales linearly with money. In practice, it rarely does.

DL3 said...

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Ramona said...

Great!