The Evolving Landscape of Development Finance

1. The Evolving Landscape of Development Finance Results and reflections from the first year of the OECD Global Forum on Development Louka T. Katseli, Development Centre Richard Carey, Development Cooperation Directorate

2. Overview 1 The (non-) system of development finance 2 Consequences for recipients 3 Challenges for donors 4 Dealing with complexity

3. Observer status in DAC The international system of development finance is expanding Public Private BilateralDonors MultilateralDonors Global Programmes NGOs Other private non profit Private for profit 22 DAC donors Incl. bilateral development banks and agencies GFATM GAVI Global EnvironmentFacility Fast Track Initiative/ Education for All … InternationalNGOs Foundations Firms World Bank IMF UNDP National NGOs in donor countries Households (e.g. remittances and other private transfers) Commercial Banks EC Other OECDdonors (non-DAC) Regionaldev. banks & agencies National NGOs in developing countries Private Investors UN SpecialisedAgencies Others, e.g. Islamic Dev. Bank Emerging donors

4. Financial resources are increasing, especially to emerging economies 2004 1980 Developing countries (excl emerging) Emerging Economies Source: UNCTAD, World Bank GEP 2006, IIF online statistics, OECD DAC 2006

5. But is this really a system? Source: National Audit Office (UK), DIFD- Engaging with Multilaterals, London, December 2005.

6. Public and private mechanisms are proliferating Source: Kaul and Conceicao (2006)

7. Since 2000

8. Leaving us with a (non)system that is hard to manage • Proliferation of donors • New non-DAC and private donors • Fragmentation of delivery channels

9. 1 The (non-) system of development finance 2 Consequences for recipients 3 Challenges for donors 4 Dealing with complexity

10. 23 donors per country … Source: DAC (2007); Cohen & Katseli (2007)

11. … but only a handful account for the bulk of aid Source: DAC (2007); Cohen & Katseli (2007)

12. Straining weak local capacities: too many projects Number of reported project commitments all donors (1995–2003) Number of reported project commitments top ten recipients (2001–03) Source: Roodman (2006)

13. While reporting seems simple…Health financing in Ghana Government Donors Households 59,2 % Ministry of Health 13.6 % 27,2 % Health sector Source: Drechsler & Zimmermann, 2006

14. … the reality is complex Government Donors Households 44 % Budget Support Commercial Loans (15 %) Ministry of Finance (59.2%) HPIC (0.2%) Ministry of Health Health Fund (14.9 %) & MoH Programme Support (12.3 %) Internally genera-ted funds (13.6 %) Pharma industry Foundations NGOs Global prog’s Health Sector Other private spending Projects Source: Drechsler & Zimmermann, 2006

15. Donor Fragmentation and the Erosion of Bureaucratic Quality Donor fragmentation is costly Source: Knack and Rahman (2007)

16. 1 The (non-) system of development finance 2 Consequences for recipients 3 Challenges for donors 4 Dealing with complexity

17. Observer status in DAC Global Forum on Development – Year I: Understanding the present development finance system Public Private BilateralDonors MultilateralDonors Global Programmes NGOs Other private non profit Private for profit 22 DAC donors Incl. bilateral development banks and agencies GFATM GAVI Global EnvironmentFacility Fast Track Initiative/ Education for All … InternationalNGOs Foundations Firms World Bank IMF UNDP National NGOs in donor countries Households (e.g. remittances and other private transfers) Commercial Banks EC Other OECDdonors (non-DAC) Regionaldev. banks & agencies National NGOs in developing countries Private Investors UN SpecialisedAgencies Others, e.g. Islamic Dev. Bank Emerging donors

18. Foundations as partners • Conference in Lisbon, 22-23 March 07 • Improve mutual information sharing • Deepen dialogue for a common agenda on • structural inequality? • governance & democratic accountability? • infectious diseases?  Session I

19. Global Programmes • Policy Workshop in Paris, 4-5 December 06 • Horizontal vs. vertical approaches • Weak systemic capacities are unable to integrate vertical programmes • A distortion of priorities: how well are they integrated into country strategies? • Proliferation of programmes raises transaction costs and overburdens recipient-country administrations  Session I

20. Emerging Economies and Development Co-operation • A big opportunity to achieve shared goals • donor diversity gives recipient countries choice • But also concerns about diverging approaches to • Millennium Development Goals • Governance and accountability • Aid effectiveness and the Paris Declaration • Risks to debt sustainability? (is a Debt Transparency Initiative needed?) • Need for improved information flows and coordination at country level  Session II

21. Challenges for bilateral donors in 07/08 • Two important years • 2007: replenishment discussions for IDA, the ADF and the Global Fund • 2008: reviews of the Monterrey Consensus and the Paris Declaration • Following commitments, pressure to monitor performance and show results is rising • Donors are thus faced with difficult portfolio decisions  Session III

22. Soul-searching multilaterals • Informal Workshop in Berlin, Jan. 2007 • A weakening multilateral system? • UN system is weakened by ‘cherry picking’, • the IMF by a vanishing client base, • the IDA by move toward grant finance • All by too many priorities and inadequate governance structures • Rethinking roles and responsibilities  Session III

23. No clear specialisation of multilaterals relative to bilaterals for half of total ODA Source: Cohen & Katseli, 2007

24. Regional Development Banks: Struggling to reconcile competing priorities Voting power Source: Ocampo, 2007.

25. 1 The (non-) system of development finance 2 Consequences for recipients 3 Challenges for donors 4 Dealing with complexity

26. Is complexity here to stay? “Fools ignore complexity. Pragmatists suffer it. Some can avoid it. Geniuses remove it.” Alan Perlis • The « Architect » is dead • Competition has its limits • But so does co-ordination

27. Improving coherence (1):Multilateral reform • UN Reform: Delivering as One • Broaden evaluation criteria to include core aspects of system-wide coherence and systemic capacity development in partner countries

28. Improving coherence (2):Co-ordination / division of labour • German Development Institute • Towards an improved division of labour in EU development co-operation • European Commission • Code of Conduct for an improved division of labour between EU Donors • OECD Development Centre • Delegated co-operation based on National and Sectoral Coordination Councils.

29. Improving coherence (3): Towards coherent behaviour by Donor Countries as Portfolio Investors in the Aid Industry (buying development outcomes) • Performance Assessment Systems (MOPAN, MEFF, MERA, PMF, MMS, etc.) • Global Programmes: Selectivity and Governance • Forward information: survey and dialogue • Thinking holistically, with expanded time frames

30. Thank you