Aid instruments

DFIDSEAMay 2006

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History of development

1950’s Recurrent cost payments 1960’s Comprehensive (state) planning 1970’s Projectised development 1980’s Structural adjustment 1990’s Policy management 2000’s Budget support

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(1) Recurrent cost transfers

Colonial legacy Transfers continued at the same level Little for welfare and social protection Maintenance of infrastructure (to allow business to

continue)

Interim measure but lasted a long time

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Analysis

Disillusionment with budget allocation Tribal/regional bias Corruption

Change in paradigm Endogenous growth required TOT/Skills Managerialism in fashion

Management by objectives Logframes

Project aid

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(2) Projectised aid

Structure Separated Capital aid from TA

Capital aid (for investment, not recurrent costs) Technical assistance focus on TOT/Skills

Projects Boundaries limited risk Allowed new players into the game Quarantined from the political issues Created space for “participation” (projects and users)

Different types of projects Government ownership and management Government ownership and external management Parallel ownership and external ownership

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Problems

Created recurrent cost problems Staff costs were irreversible

Distorted governments services Focused on donor agenda Claimed scare human resources

High transaction costs TA – highly visible

Unpredictable Difficult macro-economic management

Unowned Parallel management Parallel accountability

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Analysis

Results questioned Failure - due to “bad” (= non-supportive) policy Success - due to good TA packaging

Impact limited Local ownership - limited (sustainability) Scope - limited (boutique projects)

Building a house with a few goods bricks

Need to address policy issues

Need to reassert the role of the state and address the problems of the state

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(3) Programme/sector aid

Package: Overall policy and institutional framework Underlying projects

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Results

Useful tool for bring policy formulation together with policy delivery

Works well when sector is standalone e.g. health, education, etc

Less successful in sectors with externalitiese.g. land policy?

Delivery problems in decentralised situationse.g. sector opt outs?

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Analysis

Locks development into “silos” Limits public discourse Makes donors accountable

De-facto re-allocation Government removed domestic resources from “sexy”

sectors

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(4) Budget support (Various formats)

Provides un-earmarked financial aid

Supported by package of fiduciary reforms Ownership centred on Ministry of Finance

Links to national plan and agenda: Goals and strategies (PRSPs) Expenditure framework (MTEF)

Allows donors to: Align with national objectives Harmonise with each other

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Addresses problems of the state

Recurrent cost problem Structural adjustment

New focus on fiduciary issues Financial management Corruption reduction Revenue management

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Associated restructuring of the state

Privatisation Increased accountability to users/consumers

Decentralisation Make local government responsible for service provision

Bring in new players NGOs, private sector

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Issues

Conditionality Effectiveness? Effect on ownership?

Ownership Power/right to set the agenda

Accountability Making the government accountable to its citizens Making service delivery agencies accountable to citizens

Continuity/Consistency Stability is needed for growth

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Analysis

Large transfers involved Enables significant outcomes Allows donors to disburse large sums with low

transaction costs

Empowerment/disempowerment of the government to its citizens? to poor people?

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Outstanding concerns

State engagement with citizens Organisation of citizen voice Mechanisms for voice and participation

New tools – Participatory poverty assessments Old tools - Poverty impact studies

State engagement with politicians Representation Oversight

State engagement with “normative” value systems Religion Ideology

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Outstanding concerns

State engagement with “the underworld” Business Politicians Militias

Rent-seeking behaviour Exploitation of labour Land grabbing Theft of natural resources Super normal profits

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(4) Challenge funds

Different approach Focus on process and outcomes Separate planning and programming

Procedure Overarching strategy

With explicit preferences Call for bids

Demand driven plans Ensures plans precede work

Handles lumpy investments Good for innovation

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(5) Global instruments

Fundamental rights HPR Rights of Labour, of Migrants, of Indigenous people

Trade and access to markets WTO

Global public goods Standards

Multilateral services Reform of the UN IFI

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Summary

Aid instrumentsBudget transfer

Projectised development

Programmatic approaches

Budget support

PolicydeliveryPolicy FormulationGovernance structures Resources and allocations

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Outcomes and housekeeping

Housekeeping Harmonisation Headcount Transaction costs

Outcomes Poverty reduction Democratic governance Influencing the growth trajectory Social change

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Overarching question:Do you believe the “black box”?

Black box (or narrative) Sets out beliefs, assumptions, visions Drives action

Aid instruments outcomes

What is the change model? new state of affairs we want? pathway/routemap

Upstream agencies use more simplified models of policy-outcomes

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What do states require?

Enhanced financial assistance Investment and recurrent costs

Effective governance systems Allocating power – checking abuse –managing transitions Allocating private property rights Effective public sectors

Inclusive policy formulation processes Making collective choices

Efficient policy delivery mechanisms Implementation of policy