Output-Based Aid, Improving Service Delivery to the Poor

Development practitioners are acutely aware of the need to find more effective ways to improve basic living conditions for the poor, as traditional approaches of delivering public support have not always led to the results intended. Results-based financing instruments are now recognized as one important piece of the aid delivery puzzle.

Yogita Mumssen, Senior Infrastructure Economist in the World Bank’s Sustainable Development Vice-Presidency, presented a new World Bank report at the Bank’s Washington InfoShop which indicates that output-based aid (OBA), a results-based instrument, has proven advantages over traditional aid approaches.

“Output-based aid is pro-poor and primarily focused on ensuring access to basic infrastructure and social services for the poor in developing countries,” said Yogita.

Yogita, a co-author of the report with Lars Johannes and Geeta Kumar, was joined by a panel moderated by Nigel Twose, IFC/IDA Secretariat Director, with discussants Vijay Jagannathan, Infrastructure Sector Manager – East Asia and Pacific Region at the Bank, Ruben S Reinoso Jr., Assistant Director General at the National Economic Development Authority (NEDA) in the Philippines, and Patricia Veevers-Carter, Program Manager of the Global Partnership on Output-Based Aid (GPOBA).

The report’s findings

The report, Output-Based Aid: Lessons Learned and Best Practices, analyses the performance of OBA through a review of about 200 projects across six sectors – including energy, telecommunications, health, and water and sanitation.

L to R: Nigel Twose - moderator, Yogita Mumssen - presenter, and discussants Patricia Veevers-Carter, Ruben S. Reinoso Jr., and Vijay Jagannathan“This report embodies the culmination of experience gained in output-based aid. Its practical analysis of best practices and possible challenges will help development partners to use this results-based financing tool more frequently and on a larger scale,” said Patricia Veevers-Carter.

The review found that the number of OBA projects has grown from just 32 in the World Bank Group (WBG) in 2002-2003 to about 131 in 2009. Many other OBA schemes have been identified outside the WBG.

Currently the majority of OBA projects are in Latin America and the Caribbean. GPOBA, a partnership program administered by the World Bank, has contributed to an increased number of OBA projects in the Africa region with pilot projects in different sectors.

Ruben Reinoso shared his firsthand experience of using an OBA approach in the water sector in Manila: “What is significant about OBA in the water sector is that it allows low-income households that cannot afford connection fees for basic services to gain access,” said Ruben. “About 11,000 families benefited from the subsidy funded by GPOBA and now have access to a clean, affordable, water supply and are enjoying other benefits like a reduction in the incidence of water-borne diseases.”

Shifting performance risk to service providers makes OBA attractive to donors

A new pilot project is cleaning up the cooking fires and getting people hooked onto a safer, cleaner, cheaper alternative.OBA is an attractive proposition for donors because it shifts the performance risk to service providers. Payment of subsidies is directly tied to pre-agreed “outputs” which are subject to independent verification, making service providers accountable for output delivery.

At the event, a video about a GPOBA natural gas project in Colombia was screened. Working in partnership with the Fundación Promigas—the charitable foundation of Promigas, the owner of a number of Colombian gas transmission and distribution companies— GPOBA funded subsidy payments for about 35,000 poor households, enabling them to access in-home natural gas connections that provide a more affordable and safer energy source.

The project is an example of how OBA can act as an incentive to encourage private companies to offer services to low-income households and to leverage their finance and expertise in support of projects.

Improving operational efficiency 


Read the eBook The aim of OBA, like other RBF instruments, is to enhance the effectiveness of public funding. OBA pays a pre-agreed amount after outputs have been delivered and thus provides incentives for operational efficiency. Efficiency gains can be achieved by using competitive bidding, so that contracts are awarded to the bidder that requires the least subsidy to provide a certain output. In the case of an OBA water project in Uganda, this resulted in an average efficiency gain of about 20 percent.

This efficiency-by-design factor was highlighted by Vijay Jagannathan.

“There is an increased expectation for development to be more accountability-driven; OBA’s requirement for independent verification of outputs makes it highly relevant to the climate change challenge and the ‘green growth’ agenda, both of which require measurable outcomes,” said Vijay.

The fact that why, how and to whom subsidies will be paid is pre-agreed in an OBA project makes the approach transparent, further enhancing operational efficiency.

Moving forward

The use of OBA is not yet fully mainstreamed in the Bank Group or in the wider development sector. However, co-author Lars Johannes says: “There is great potential for developing the OBA approach by working together with practitioners of different results-based approaches and using rigorous evaluation tools in drawing lessons to develop best practices.”

The co-authors closed by emphasizing that in order to move forward and build on the success of OBA projects to date, the current portfolio should continue to be monitored, OBA projects scaled-up where it makes sense, lessons shared across results-based financing initiatives, and results gathered from impact evaluations currently underway.

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