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Evaluation of Revenue Projects – Synthesis Report

Author: Department for International Development
Date: 2001
Size: 78 pages

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Summary

The UK Department for International Development (DFID) has undertaken 40 revenue-related projects since 1992, including interventions in management systems, human resource development and organisational changes. This report examines the implementation and impact of projects from Ghana, Uganda, Zambia and Pakistan to identify lessons learned for the benefit of future programmes. It also aims to identify how revenue-related projects fit into DFID’s portfolio and poverty reduction objectives, as set out in the 1997 White Paper.

The evaluation concludes that in the short term, revenue projects can help countries achieve macro-economic stabilisation and hence increased growth. In the longer term they can aid poverty reduction by supporting tax reforms or increasing the capacity of revenue authorities. However, this is dependent upon favourable conditions, which are difficult to achieve in many developing countries. The report presents lessons for the future for DFID as well as for revenue authorities and national governments.

Revenue-related projects do have a place in DFID’s portfolio. There are strong links between DFID interventions and the increased capacity of revenue agencies to collect revenue. Increases in revenue/GDP ratios can be linked with project support in Uganda and Zambia, although no effect was found in Ghana or Pakistan.

• However, interventions may be rendered ineffective by a lack of political commitment, corruption or bad governance. The decision whether to implement projects where poor circumstances, governments or policies remain is a difficult one.
• The impacts on poverty of revenue projects result from three mechanisms. First, the decision on who pays what taxes. The effects on poverty of DFID’s interventions, often in the form of changes in tax structures, has generally been good.
• Second, increases in revenues theoretically increase resources available for pro-poor expenditure. However, due to inadequate budgetary planning systems, financial problems and International Monetary Fund conditions, this relationship is shown to be weak or non-existent
• Third, revenue projects can remove constraints to growth, especially at macro-economic level. This was confirmed to be an outcome and one which can have substantial impact in the medium to long term.

All countries had inadequate tax policy capabilities, resulting in poor tax policies and collection strategies. There is scope for DFID to provide assistance in strengthening these capabilities and improve the poverty focus of fiscal policies. Suggestions for future projects that would increase their effectiveness and have positive impacts on poverty are presented:

• Projects should be targeted at countries where expenditure management systems are above a certain standard and commitments towards improving pro-poor budgetary systems have been made. Government commitment and support should be realistically assessed as there are clearly limits to the extent to which governments are willing or able to implement changes.
• Build tax policy into revenue projects which have a specific mandate to bring poverty-related analysis into the budget agenda. This can be done in the context of IMF Poverty Reduction Strategy-based lending.
• Consider support to pro-poor civil society organisations to allow them to have a voice in a democratic budgetary process.

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Source: Department for International Development Evaluation Department 2001, 'Evaluation of Revenue Projects – Synthesis Report', DFID, London.