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Session 3:Aid instruments and the

PRSP

Finnish Aid in a PRS ContextHelsinki Workshop19-22 May 2003

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Shifting aid paradigms

Planning Adjustment CDF / PRSP

• Market Failure• Govt-led/top down

• Investment led • Projects • Planners/engineers

• Donors fill resource gap• External TA

• Marginal role for M&E

• Govt. failure• Market-led

• Get prices right• Policy reform• Economists• Donor determined resource envelope• Conditionality

• Donor monitoring of policy impl.

• Situation-dep. failure• Country-led

• Institutions • Pol/instit. reform • Multi-disciplinary• Partnerships• Aid coordination• Ownership

• Results-oriented• Participatory M&E

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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

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Past weaknesses• Ex ante conditionality – a weak/

imperfect lever on policy change

• Hence, weak country ownership or leadership of major reform processes

• Projects undermined by poor policy & weak attention to systemic issues (institutions & political economy)

• Fungibility & poor links with national budgetary processes

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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’

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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

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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

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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

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• Jointly agreed indicators and common performance assessment frameworks

• Harmonised rules/procedures & shared approaches to risk assessment (CFAA/CPAR)

Aid instruments in a PRSP context

• Ex ante assessments of poverty & social impacts; participation & voice (PPAs)

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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

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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 analysisNew aid modalities also require evaluation work, to clarify understandings and test results …

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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

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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

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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

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Note

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