Session 3: Aid instruments and the PRSP

1. Session 3:Aid instruments and the PRSP Finnish Aid in a PRS Context Helsinki Workshop 19-22 May 2003

2. Shifting aid paradigms Planning Adjustment CDF / PRSP • Market Failure • Govt-led/top down • Govt. failure • Market-led • Situation-dep. • failure • Country-led • Investment led • Projects • Planners/engineers • Get prices right • Policy reform • Economists • Institutions • Pol/instit. reform • Multi-disciplinary • Donors fill • resource gap • External TA • Donor determined • resource envelope • Conditionality • Partnerships • Aid coordination • Ownership • Results-oriented • Participatory M&E • Marginal role for • M&E • Donor monitoring • of policy impl.

3. When is aid effective? • Aid works best where policies are ‘owned’ and institutions (rules of the game) are supportive • Fewer conditions and linked to performance • Managed and monitored using national systems with opportunities for public participation • Coordinated and aligned with national priorities

4. Past weaknesses • Ex ante conditionality – a weak/ imperfect lever on policy change • Hence, weak country ownership or leadership of major reform processes • Fungibility & poor links with national budgetary processes • Projects undermined by poor policy & weak attention to systemic issues (institutions & political economy)

5. Past weaknesses • Multiple/duplicative projects defined by donor priorities; limited scale and high transactions costs: • Proliferation of PIUs • Off-budget/non-transparent aid flows • Poverty focus driven by project cycles & a ‘disbursement culture’

6. Implications for external partners • Effective aid requires broader agreement on country priorities • Financing must be supported by policy dialogue at macro and sector levels • Institutional/systemic reforms including budget processes (PEM/PFM) • Rethink conditionality and the meaning of aid partnerships • More focus on results

7. The new aid architecture • Poverty reduction (results) overriding focus – MDGs / PRSPs • Shift towards process and outcome-based conditionality (participation & voice) • Emphasis on longer-term assistance • Policy coherence, moving ‘upstream’, scaling-up • Importance of domestic accountability

8. Aid instruments in a PRSP context • Shift from stand-alone, off-budget projects towards on-budget & integrated investments aligned with national strategy • Shift towards joint/pooled funding of sector programmes & general budgets aligned with national strategy • Less earmarking, more emphasis on results

9. Aid instruments in a PRSP context • Jointly agreed indicators and common performance assessment frameworks • Harmonised rules/procedures & shared approaches to risk assessment (CFAA/CPAR) • Ex ante assessments of poverty & social impacts; participation & voice (PPAs)

10. Implications • Business as usual no longer acceptable • Increased alignment of donor strategies, tools and practices with national PRSs • Working with national systems & processes, including those for monitoring • Harmonisation across external partner procedures

11. Implications • Partnerships increasingly based on mutual accountability • Transparent mechanisms for performance assessment (when funds are on or off) • Improved assessments of country context and risks – better political analysis New aid modalities also require evaluation work, to clarify understandings and test results …

12. New aid modalities: new challenges for aid evaluation • Strong arguments for general budget support, but can it be evaluated? • Initial work for DFID and DAC has produced a logframe, spelling out immediate and medium-term results with a focus on institutional benefits that seem likely to improve poverty outcomes • Work is continuing, to turn this into a full evaluation framework

13. Uganda pilot enquiry suggests • Reduced transaction costs and greater predictability are hard to get immediately • There are improvements in domestic accountability, starting with line ministries and districts answering more to budget authorities and less (directly) to donors • It is hard to distinguish effects of GBS from effects of other factors

14. Key finding from Uganda • Government is much clearer than most on what it expects from GBS (PEAP Vol. III) • But donors use different and inconsistent concepts: a warm but fuzzy notion of partnership + quite traditional faith in conditionality to get them out of problems • Need to define and agree the specific rules of behaviour that apply to the GBS “club” - rules about exit, voice and loyalty

15. Note • For further details, see General Budget Support Evaluability Study and Glasgow Workshop Report, on the website