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Leakiness of aid



Source: Ablo and Reinikka, 1998.

" Budget allocations alone can be misleading in explaining outcomes and making policy decisions, when institutions are weak. They diagnose the problem, using empirical evidence from primary education and health care in Uganda, but arguing that a similar problem exists in many countries. Adequate public accounts are not available so they carried out a field survey of schools and clinics to collect data on spending. Problems with the flow of public funds have to do largely with governance and a lack of accountability. Among problems with the service delivery system:

° Primary enrollments increased 60 percent in 199195, but official figures indicate enrollments were stagnant. Such a stunning discrepancy indicates that official data cannot always be trusted.

° The government's share of funding increased over time, but public primary education was still funded largely by parents, who contributed, on average, more than 70 percent of total spending on schools in 1991 (median 40 percent) and 60 percent in 1995 (median 20 percent). Parents' contributions continued to increase despite higher public spending.

° Less than 30 percent of funding intended for nonsalary public spending actually reached the schools in 1991-95; district authorities kept and used most of the capitation grant meant for schools. (An increase in enrollments which was not taken into account when the total amount of the grant was calculated is responsible for the remaining discrepancy.) Similarly, at best, schools were allowed to keep only a third of mandatory tuition fees from parents; the rest went to district education offices.

° By and large, salary payments did reach the schools, so at least the wage part of the increase in budget allocations filtered down through the system. The only systematic way of misappropriating salary funds were ghosts on the payroll. Close to 20 percent of all teachers on the payroll were removed as ghosts in 1993.

° The behavior of public service facilities in the two sectors varies considerably. Schools, for example, keep systematic records of financial flows and enrollments (perhaps because parents provide most of the funding and are likely to insist on accountability). The health care sector does not keep good records."

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