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Aid Architecture - May 2008

Aid Architecture

This paper provides background data and analysis to help inform upcoming discussions on the role of IDA in the global aid architecture. It reviews broad trends in Official Development Assistance (ODA) flows; the growing complexity of the existing global aid architecture; and the prospects and challenges facing the donor community going forward.

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Chapter Titles

I. Introduction
Looking at broad Official Development Assistance (ODA) trends, the paper aims to provide a common basis for discussing the role of the International Development Association (IDA) in the international aid architecture and how the institution can best assist countries in achieving the Millennium Development Goals.

II. Overview of Trends in Official Development Assistance
Provides an overview of the main trends in ODA, focusing on overall trends in ODA flows and the distribution of ODA across recipient countries. The recent upward trend in ODA volumes has been accompanied by an increase in the amount of aid delivered through grants. Almost 90 percent of bilateral ODA is now in the form of grants, and there has also been an increase in the use of grants by multilateral organizations.

Sub-Saharan Africa’s share of total ODA has been growing for almost half a century, from a little more than 20 percent in the 1960s to over a third of total ODA today. The share of the social sectors in total sector allocable ODA to low-income countries 36 percent in the early 1990s to 57 percent in 2002-2006. Over the period 2002-2006, about half of ODA for physical infrastructure for IDA-eligible countries was provided by two bilateral donors (Japan and the US, together at 25 percent) and two multilateral donors (IDA and EC, together at 21 percent).

In Focus: Vertical Funds

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III. Proliferation of Aid Channels
The global aid architecture has become increasingly complex, with the growing importance of non-DAC and other “emerging” donors as well as with a high degree of aid proliferation and ODA fragmentation. New donors bring with them more resources to help developing countries reach the Millennium Development Goals, but also new challenges for harmonization and alignment, in particular as limited data is available regarding aid volumes and terms.

The impact of the proliferation of aid channels can be seen from the perspective of both donors and recipients:

- From the donors’ viewpoint , about half of the bilateral contributions channeled through multilateral channels in 2005 went through some degree of earmarking by sector or theme. Besides complicating budgetary management, earmarking may lead to a misalignment between donors’ and recipient countries’ priorities. By constraining recipients’ flexibility in allocating resources, earmarking may contribute to under-funding of other investments which are equally important for economic growth and poverty reduction.

- From the recipients’ viewpoint , the growing importance of sector/thematic international organizations and private donors further increased the complexity of the aid architecture. The problem is particularly pronounced in the health sector, where the effectiveness of increased ODA will rest on finding an appropriate balance between providing resources for disease- and intervention-specific health programs and strengthening health systems.
Read more on IDA’s work in the Health sector

IV. Fragmentation of Official Development Assistance
The proliferation of aid channels has been combined with fragmented aid, which can be damaging to the effectiveness of ODA, particularly in recipient countries with low institutional capacity, as it may increase the transaction costs of aid. Fragmentation is manifested in different forms, such as the number of donor-funded activities and the financial size of aid commitments and the dispersion of small-scale free-standing technical assistance as a modality (instrument) of aid delivery.

This section briefly describes ODA fragmentation trends and the transaction costs they engender and how these issues are being addressed in the context of the Paris Declaration on Aid Effectiveness. Fragmentation seems to be higher when the institutional capacity of recipient countries is lower. Transaction costs of ODA affect both donors and recipients. From the recipient countries’ perspective, transaction costs are directly and indirectly associated with the administrative burden placed on them. As an example, a large share of aid to Tanzania is through more than 700 projects managed by 56 parallel implementation units. Half of all technical assistance provided to the country is not coordinated with the Tanzanian government. Tanzania received 541 donor missions during 2005 of which only 17 percent involved more than one donor.

V. Concluding Remarks
Concludes with a brief look into the main challenges facing the donor community going forward, including: (i) achieving complementarity across national, regional and global development priorities and programs; and (ii) strengthening recipient countries’ ability to make effective use of potentially scaled-up fast-disbursing ODA such as budget support. The platform provided by the principles and targets of the Paris Declaration should help in this endeavor.

A summary of the historical evolution of the international aid architecture is provided in Annex, along with the lists of bilateral donors, main international organizations and data on long-term ODA trends and donor-by-donor bilateral and multilateral contributions over the 2000-05 period.

Learn More

IDA at Work: A retrospective look at what IDA has achieved in select areas over the last 10 years. Learn more

What is IDA? The International Development Association (IDA) is the part of the World Bank that provides interest-free credits to the world's poorest countries. Learn more

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