"The Aid Effectiveness Puzzle – Completing the Picture?"

Programme

In recent years the donor community shifted their aid paradigm from project aid to programme based approaches. The latter, which includes aid modalities such as pooled funding, sector and general budget support, is supposed to be more effective because it gives ownership to the recipient government. However, aid dependant countries might loose their incentives to improve growth if they receive too much foreign assistance. Also, direct budget support affects power relations within a government, as it is typically managed by the Ministries of Finance. Changing accountability relations might be undesirable in countries with weak democracy.

The application of direct budget support gives prominence to institutional development objectives, specifically to the requirements for open, accountable and capable governments. One important reason for this shift away from project aid is that project aid makes use of parallel non governmental management systems whereas the opposite is preferred under the new aid paradigm. Another reason is that the use of donor specific review and approval mechanisms undermine government ownership and even domestic democratic accountability. Budget support is assumed to redress these disadvantages. It makes use of public finance management, increases therefore the possibility to strengthen governmental systems; it reduces transaction costs through donor coordination, strengthens ownership through better alignment to recipient government agenda’s and policies and at the same time raises the potential for strengthening political dialogue as well as improving domestic accountability.

Despite these expectations of the use of budget aid, the first evaluations of general budget support (GBS) in different countries have shown varied degrees of success for various reasons. Lawson, Booth and others (2005) found that GBS in Tanzania for example, has had positive effects though not at all expected levels and in all areas[1]. They concluded that many of the effects that have not been reached (yet) strongly depend on the underlying domestic political and institutional factors (internal governance conditions). Another important finding from the Tanzania evaluation is that there is no evidence of a reduction in transaction costs. This raises the question about the necessary conditions under which donor coordination will reduce transaction costs and result in more effective aid delivery (external governance conditions).

Accountability has become a major issue in recent development debates around good governance, anticorruption policies, democratization debates and aid effectiveness. There seems to be little discussion among donors about the values of accountability for society. It is thought to provide for public democratic control, prevent the misuse or abuse of power and enhance governance responsiveness and effectiveness, reflecting more legitimate governance. But how is aid impacting on accountability relations in recipient countries?

Evaluations of project aid (off budget) showed that in a majority of projects, the use of donor-specific mechanisms of accountability are corroding the normal structures of democratic accountability. Budget support is assumed to improve accountability, not only to donors but, more importantly, domestically from recipient governments to its citizens. In practice, however, the former greatly outperforms the latter. According to some this is mainly due to the imposed conditionalities that push recipient governments for more external accountability to donors.

Evaluations of budget support also show that improvements in domestic accountability do not come automatically. On the contrary, there is increasing empirical evidence from country studies that budget aid might even undermine or weaken the roles of traditional domestic accountability institutions like for example parliaments and political parties. The strong oversight role that donors assume in the government budgeting process runs the risk to replace the role of parliament. In addition to this, the strong focus of donors to push for participation of civil society in national decision making processes like poverty strategy plans or national development plans may further deteriorate the role of political parties.  Given that budget support does not seem to be the panacea for the accountability problems that were apparent in project aid, the question arises to what extent and under what conditions does aid strengthen or distort the accountability relationship between recipient governments and their citizens?

Debate: Governance implications and accountability – linking back to Accra

Introduction by:  James Mackie, ECDPM

Key Note 2: Aid effectiveness and accountability – a donor’s perspective

Maarten Brouwer, Ministry of Of Foreign Affairs, the Netherlands
 

The discussion on aid performance seems to overlook the definition of ‘effectiveness’. It makes it difficult to find adequate and unambiguous indicators for aid effectiveness beyond the general ones featuring in the Paris Declaration. The 2006 OECD Survey on Monitoring the Paris Declaration clearly shows that in measuring several of the 12 criteria, conceptual differences and lack of standardized definitions (e.g. what is a joint mission?) caused for difficult and unreliable universal measurement, subsequently affecting the reliability of the survey’s findings.

Moreover, the survey did not address some more broader issues in relation to the measurement of aid effectiveness. What is the ultimate objective of aid? What timeframe do we need to consider? When is aid effective, and which indicators could be chosen to track the progress towards (more) effective aid? Which methodological approaches are feasible for measuring aid effectiveness? What are the implications of the Paris Declaration’s commitment to rely more and more on partner country government systems? What are some of the recent practices with cooperation among donors in this area?

This session will focus on some of the key challenges and prospects in measuring aid effectiveness, where possible drawing on some recent country case studies that become available in the run-up towards Accra.