Project aid was used extensively for infrastructure and social services especially in the 1960s, and poverty alleviation & rural development in the 1970s. It is attractive from donors' accountability point of view as it is highly visible to peoples in both donor and recipient countries. It is also technologically straight forward since it consists of transplants of technology already available in donor country, and could economically be tied up with procurement of services and goods from the donor country. However, in the 1980's economic crisis and debt defaults forced donors to reconsider the effectiveness of project aid modality. In this period, donors needed an instrument that was quick-disbursing, that would bring about policy change, and that would build government capacity in Africa . Project aid could not meet these donors' needs.
In addition to inability to deal with the crisis situation, project aid has been criticized in terms of ownership, fragmentation, and weak impact at the sector level. Critics point that project aid tends to be donor driven which enforces donor dependency and undermines local ownership, commitment and hence has negative effects on project sustainability. They also say that concentration of funds on specific projects leads to lack of an overall view of the sector as a whole and lack of sufficient attention to policy, administrative and institutional environments under which projects must operate.
The growing dissatisfaction with the project aid in the 1990s led to the rise of sector-wide approaches (SWAPs) and budgetary support as the major aid modalities in Africa . In terms of SWAPS, there are basically three types of modalities, i.e., project type aid (donor-funded activities support the government's sector framework but are managed as projects), earmarked funds (donor-funding supports the government's sector policy framework), and sector budgetary support (donor provides funds, which are pooled with other donors).
Under budgetary support, f unds are provided by donors to government central treasury pool but are not linked to a specific sector program. In return, donors usually engage in policy dialogue with the government on the total budget, not just for a specific sector. This modality is considered cost effective in that it reduces transaction costs of both donors and government and increases government's capacity the speed with which to spend the money. Supporters assert that this modality enhances government ownership, and hence sustainability, since it gives full powers regarding management of funds to government to provide public services to citizens.
From donor's perspective budgetary support can increase its impact by joint efforts with other donors, make aid more effective by minimising transaction costs and by giving influence on the recipient government in such areas as financial management systems reform, public service reform, and good governance. However, budgetary support d oes have quite a few weaknesses such as:
• Budgetary support requires a high level of government capacity in terms of planning, implementation, evaluation and monitoring as well as good governance – factors which are generally lacking in most recipient African countries;
• There are capacity constraints on the part of donors as general budget support requires a different set of skills on the part of donor staff than those required under project aid. Among the skills needed and which are often lacking are skills in policy analysis and development; skills in facilitation, dialogue and negotiation; public financial management; M&E; and identification of capacity constraints;
• It limits donors' participation due to loss of direct control of their funds; and
• The continuity of donor support is uncertain where regime changes or policy changes on the side of the donors.
