I'm taking part in an online course on corruption, (run by the u4 anti-corruption resource centre, invited by DFID), which has thrown up some interesting questions about the links between corruption and donor aid. The traditional view is that all types of aid carry corruption risks, but that general budget support - where donors provide money to national government, which then decides how it is allocated - can lead to more corruption than project funding - where donors are more closely involved in planning and implementation of specific projects. There is certainly some justification for this view - look at how many big corruption scandals have there been in the last 6-7 years in Tanzania, since budget support was introduced, for example - but I don't think it is as simple as that.
There's no doubt that Tanzania has seen more corruption scandals since budget support srtated than when project funding was the more common approach. But corruption scandals are not the same thing as corruption itself. There may well be many more cases of corruption than never become public and never become a scandal. I think it's very possible that corruption has not increased at all, but it has just become more visible.
The idea behind budget support is that by putting decisions in the hands of national government, these decisions will be subject to more scrutiny by parliament, the media, civil society, etc. This is designed to strengthen national democracy. In contrast, project funds are often not even on the government budget, and parliament has little role in scrutinising projects that have been decided on between a particular donor and a particular government department. There is no doubt that parliament, the media and civil society have all become much stronger and more independent in Tanzania since budget support started, so perhaps this is working.
We could even go further and argue that more corruption scandals are evidence that budget support is working, improving the democratic process. Perhaps budget support has made it more likely that the media and parliament will uncover cases of corruption and turn them into scandals rather than allowing them to remain hidden.
As donor countries recover from the global economic crisis, there is no doubt that aid budgets will be cut. Budget support is at risk of becoming the easy target for cuts, particularly if it is being blamed for corruption. This would be a step back, away from democratisation, undermining national ownership of aid, and even perhaps making it easier for corruption to go undetected.