A growing consensus for system reform

2. Agenda Setting Implementation Monitoring and Evaluation A growing consensus for system reform

3. Major Shortcomings – Agenda Setting • ACTORS • Hegemony of large donors in policy priorities • Influential bilateral donors • Dominance of BWIs in policy selection • Weakened and uncoordinated UN agencies • Private financial institutions • Multinational companies • EFFECTS • Lack of voice and ownership • Limited participation of local stakeholders • Aid-dependency syndrome • Diffused political responsibility • Weakened credibility of domestic institutions • POLICY PROCESS • Normative “one-size-fits-all” approaches • Mismatch with local conditions and needs • Selectivity • Lack of policy coherence across relevant policy domains • Ambitious long-term agendas through short-term instruments

4. Major Shortcomings - Implementation • ACTORS • Multitude of operating actors • EFFECTS • Unpredictable financing and economic environment • High transaction costs • Inefficient use of resources • POLICY PROCESS • Improved but limited harmonisation of donors • Plethora of donor-driven projects, policies and practices • Multitude of funding mechanisms and instruments

5. Major Shortcomings - Monitoring and Evaluation • ACTORS • Donor-side experts • Evaluation units within donor institutions • EFFECTS • Limited monitoring capacity on the ground • Low accountability to public (on donor and recipient sides) • Lack of transparent operations • No arbitration mechanisms • No internal learning by doing • Limited international sharing of best practices • POLICY PROCESS • One-way monitoring and evaluation • Monitoring of inputs rather than outputs • Limited use of objective outcome indicators • Limited “peer reviews”

6. Informational Asymmetries and Adverse Selection Informational asymmetries lead donors to engage in practices harmful to recipient interests Poor countries or weak-capacity states experience more difficulties in obtaining adequate financing “Free-rider” effects among recipients Wait-and-see-strategy: a recipient country questioning existing practices might lose resources; an “obedient” recipient will not How do we explain inertia?

7. Failure of collective action Beneficiaries of reform - taxpayers and recipient communities - are dispersed and disorganised Future benefits from reform are uncertain Reform transaction costs incurred by intermediaries (i.e. agenda-setting institutions) are high and immediate Present costs of reform are larger than the present value of expected benefits “Agenda-setting” actors have no incentives to pursue reform How do we explain inertia?

8. We have a policy regime intermediated by entrenched but rational institutional interests We need a policy paradigm shift: reform requires new incentive structures for donors, intermediate institutions and recipients Therefore…

9. Allow those with most to lose from failure to lead: recipient governments and local accountable institutions Secure sustainable political support through domestic participative processes based on institutional competition Encourage policy coherence through comprehensive strategies for growth and poverty reduction Build a “bias for hope” by focusing on achievable short-term outcomes Increase and coordinate diverse financing from public and private sources by tying and pooling financial allocations around specific outcomes A Bias for Reform through Restructured Incentives: 10 Ideas

10. Ensure predictability, shared commitment and responsibility through contractual relationships Foster “learning by doing” through rolling programming Develop mutual transparency and accountability through independent monitoring and evaluation mechanisms Reward positive outcomes through “performance conditionality” Lower “agencies’ costs” of reform through incremental change, diversity and enhanced options 10 Ideas continued

11. Like the samba or the tango, development is not something one can learn by correspondence. It requires a shared process of active and retroactive learning by doing. Javier Santiso (2000)

12. The EU Regional Policy Aim: convergence and social cohesion of least-developed EU regions A long tradition of European Community Support Frameworks (ECSF) 1st CSF from 1989-1993 2nd CSF from 1994-1999 3rd CSF from 2000-2006 4th CSF from 2007-2013 (currently being negotiated) Is Best Practice on our Doorstep?

13. Development Support Frameworks (DSF) How would they work?

14. Preparatory Stage ECSF DSF • Consultation process with all major stakeholders Including regional administrations and civil society Giving voice to local stakeholders; allow for institutional competition. • Recipient proposal of comprehensive and multi-annual development strategy A development strategy proposed by recipient country (NDS) or regional institutions (RDS) to bilateral agencies and intergovernmental institutions Recipient government proposes strategy, consisting of National Operational Programs (NOP) and Regional Integrated Programs (RIP)

15. Preparatory Stage (cont’d) • Integrated and coherent programmes contain policy initiatives and projects with time frames, financing requirements and expected impacts NOPs and RIPs adapted to country or regional specificities and institutional set ups, integrating the growth and social policy agenda. NOP projects address sectoral priorities. RIP projects address regional priorities.

16. Negotiation Stage ECSF DSF • Stakeholder negotiations Finance Ministry and local Managing Authority negotiate with bilateral agencies, or intergovernmental institutions (e.g. EU Development & EuropeAid) Discussions between a designated Managing Authority and the EU Directorate for Regional Policy • Contractual agreement with detailed mutual obligations Signed by recipient country and European Commission. Rolling programmes ensure continuity of projects across CSFs Agreements would be flexible, but binding between two or more partners. Rolling programmes would assure continuity.

17. Financing and Implementation Stage ECSF DSF • Financing provisions BWI and regional banks assist government with programme’s financial assessment. Public and private partners align pledges around all, or a selected set of, programmes depending on donor preferences (e.g. Norway & MFTAM support education NOP) Disbursement of funds coordinated by local budget authorities through decentralised special accounts. EC’s Structural Funds cover up to 75% of total ECSF budget. The rest is supplemented by locally-raised public and private resources. An advance allows ECSF to be initiated.

18. Financing and Implementation Stage (cont’d) • Recipient-led implementation A Managing Authority with a network of decentralised units and participating institutions. DSFs serve as a focal point for donor harmonisation and coordination, and help to identify financing gaps. A Managing authority with decentralised units.

19. Monitoring and Evaluation Stage ECSF DSF • Independent monitoring & evaluation system Representative, but independent, M & E Committee conducts regular evaluations at predetermined intervals. Arbitration procedures could be envisaged. Reports on all programmes at predetermined intervals evaluate absorptive capacity, implementation and effectiveness. • Mutually-agreed follow-up evaluations Financial disbursements are conditional on positive outcomes. Corrective action, penalties or even refunding may follow. Managing Authorities and government are accountable to national parliament and the European Commission Financial allocations and replenishments are tied to evaluations. Managing Authorities and participating institutions are accountable to national authorities and development cooperation partners.

20. Ownership Coordination Results-Based Management Predictability The DSF approach would not only encourage:

21. Matching needs with financing Regional integration Mutual accountability Performance-conditionality Capacity building in recipient countries But would also provide incentives for:

22. Don’t go for the BIG BANG! A development support framework should allow for diverse approaches and preferences

23. Thank you! In dealing with the multiple and complex problems of development, we have learnt that we must be deaf, like Ulysses, to the seductive chant of the unique paradigm. Albert Hirschman (1995)