Donors and aid organizations should pool funds to lower transaction costs to recipient governments
Aid efficiency has become more urgent as food and fuel prices have risen
Increasing the amount of aid channeled through country budgets is critical
August 29, 2008—Vietnam was an international aid magnet in 2007, attracting 752 donor missions—more than three per working day.
Around the world, a growing number (230 and counting) of aid organizations, funds and programs are operating 70,000 “aid activities” averaging to only about US$1.7 million each, with each country hosting 260 missions on average.
While the funds are welcome, the plethora of projects is taxing low income governments with limited capacity and hurting countries’ ability to take control of their own development, say development experts.
Ministers from over 100 countries, heads of bilateral and multilateral development agencies, donor organizations, and civil society organizations from around the world will discuss that issue and others at the Accra High-Level Forum on Aid Effectiveness, September 2-4 in Accra, Ghana. The World Bank, the Organization for Economic Cooperation and Development (OECD) and the government of Ghana are organizing the event.
Participants will take stock of how much progress has been made since a 2005 aid effectiveness forum in Paris that tried to get donors to work together and support developing countries’ efforts to manage their own development.
Three years later, there has been progress, but “there is still too much inadequate coordination, fragmentation, and too much money flowing outside the budget,” says R. Kyle Peters, Director of Country Services of the World Bank. “The question is how can we work together more efficiently to support developing countries’ capacity to plan and direct their own development as well as lower the transaction costs on them.”
Aid efficiency has become more urgent as the price of food and fuel has skyrocketed, adds Peters.
“We need to act more quickly, because the food crisis is happening now. We want to make sure we’re agile and fast as well as coordinated.”
Channeling Aid Through Country Budgets
A critical step is increasing the amount of aid channeled through country budgets, says World Bank Managing Director Ngozi Okonjo-Iweala.
In countries like Afghanistan, where two-thirds of aid goes outside the country budget, the aid does not enable strengthening of the use of the country's own institutions and instruments.
“We need ... to support the countries to build institutions by using their own budgetary mechanisms,” she says.
More and more donors are willing to provide countries with general budget support, allowing them to take ownership of their own development strategies.
Of almost 60 countries analyzed last year, all made progress on this front, and eight achieved an operational development strategy: Burkina Faso, Ethiopia, Ghana, Rwanda, Tanzania, Uganda, Vietnam and Zambia.
Not long ago, a country like Tanzania would be faced with outside consultants telling government ministries what to do.
“These days, it has completely changed and we sit down, we discuss, and there is greater understanding,” President Jakaya Mrisho Kikwete said in an interview last year. “We also know what we want…What I have seen is not only good for us, but I have also seen donors now increasingly appreciating that it is a better way of working together.”
The World Bank supports country ownership of development through its results-based country assistance strategies, which are aligned with the country’s strategies. About 70% of the Bank’s aid to 33 countries surveyed in 2007 was aligned on national priorities, up from 62% in 2005.
The Bank is also working more closely with that of other development partners. Nearly 60% of the Bank’s analytic work is done jointly, up from 49% in 2005, and 85% of technical assistance is coordinated; 54% of aid is disbursed through common arrangements or procedures.
Need to Accelerate Progress
But development partners need to strengthen their partnerships and “work better with new donors that are coming in,” such as private and emerging market donors, says Okonjo-Iweala.
In Accra, the goal is to accelerate progress in hope of achieving the eight Millennium Development Goals(MDGs) by 2015, including eradicating extreme poverty and hunger and achieving universal education.
That will require donors to honor the commitments made at the 2005 G8 Gleneagles Summit—currently some US$39 billion short (in 2004 dollars), says Okonjo-Iweala.
“Growth, poverty reduction, and the MDGs are the ultimate goals,” adds Peters.
Effective Aid: Two Winners
Two World Bank projects—in Uganda and India—exemplify the Bank’s goals of working closely with development partners for real results.
Uganda is boosting farm productivity while much of Africa is struggling with high prices and food shortages. The country has adequate rainfall and arable land. But its success is also due to a strategy linking farmers with agricultural technology and markets, which increased productivity by 27%. The Bank and six other donors pooled funds for the National Agricultural Advisory Services project.
“Our first major accomplishment was that everybody agreed to put their money into one basket for an annual work program,” says Bank Project Lead Christine Cornelius. “We produce one audit report, one quarterly progress report, an annual report, and have joint missions with all the development partners. So if you’re on the government side that makes your life easier.”
The Andhra Pradesh Rural Poverty Reduction Project in one of India’s poorest states has increased incomes for millions of people by enabling associations of poor women to access credit. A US$345 million investment in the project by the state government, with funding from the World Bank and multiple donors, has generated credit worth US$2.5 billion from public and private sector commercial banks. “I think by the time we finish that $345 million investment, the commercial banks would have invested more than $5 billion,” says the Bank’s Project Leader Parmesh Shah.
Training of government staff and local non-governmental organizations was a major part of the project, says Shah. “The project is about building institutions at all levels.” The state government developed an autonomous organization, Society for the Elimination of Rural Poverty, with representatives from government, civil society, private sector, and commercial banks, which has become the “nucleus around which things happen,” says Shah. “They are the facilitators. They do most of things now. Our role is more to bring in new ideas, new contacts, and help them assess which approaches are working and which are not working.”