Aid Alignment: Problems of Weak Performance, Conditionality, and Donor Predictability

1. Aid Alignment: Problems of Weak Performance, Conditionality, and Donor Predictability Jan Walliser World Bank

2. Problem 1: Weak performance • Weak implementation of the PRS or sudden deterioration of a policy environment can endanger donor flows and undermine programs • Aid volatility may be enhanced further if all donors use identical performance indicators and withhold support for the same reason • Question is how and to what degree donor support can be modulated gradually in case of weak performance • Can donors shift from budget support to other, more tightly controlled, aid modalities?

3. Problem 2 : Lack of predictability of donors funds • Donors may add conditions at a late stage, making timely implementation and disbursement difficult • Donors may be unable to adapt conditions to changing policy environments • Donors may firm up disbursement decisions only late in the budget cycle • Donors may be unable to complete their own internal cycles in time to disburse promised resources

4. What governments should do • Actively manage donor harmonization and review processes to foster transparent and early decisionmaking • Establish regular budget, planning, and review cycles to allow better donor alignment • Program and sector review information feeds into government budgeting decisions • Encourage joint donor reviews coordinated with program/sector review

5. What else governments could do • Consolidate conditionality/performance assessment around a single framework • If possible, create some fiscal space to manage some probably unavoidable aid volatility (reserve buffer, ability for short-term borrowing) without disrupting programs • Manage risks further through a use of different aid modalities (i.e., allow some disbursement to go on even in weak macroeconomic environments)

6. What donors should do • Align review cycles with government planning cycles • Announce at least indicative financing decisions before the budget preparation begins • Make firm commitments of budget support before the beginning of the budget year • Disburse on time by carefully anticipating length of own processes when announcing timing of disbursements • Provide medium-term financing indications for MTEF and planning cycles

7. What else donors could do • Harmonize disbursement conditionality • Revise conditions in line with the regular review cycle • Retain some flexibility in evaluating performance for disbursement decisions • Make graduated responses to weak performance