Aid Effectiveness

The Challenge

For development assistance to achieve its full impact, it should be transparent, predictable and delivered in partnership with recipient countries. There have been some improvements in the way donors deliver and recipient countries process and manage development assistance in recent years, but progress needs to be accelerated. 

First, donor and recipient countries need to account to their parliaments and citizens for how external and domestic resources are used for development. This will allow donors and recipient countries to hold each other mutually accountable for improving aid quality.  Secondly, for better management of external and domestic resources, further improving recipient country systems to encourage their use by donors is important.  Strengthening these systems requires the efforts of both donors and recipient countries.  Finally, the transaction costs of providing development assistance must be reduced.  Managing aid is expensive for donors and recipient countries and will only get more expensive as aid volumes increase.  When donors utilize similar approaches for delivering development assistance and use country systems, transaction costs can be reduced and the impact of aid is increased.

The Opportunity

Development assistance has facilitated tremendous results over the past decade, proving that it can work, especially when donors and recipient countries each do their part to improve the quality of resources provided for development.  However, more must be done to stretch precious development assistance dollars even further.  In 2005, more than 150 countries, multilateral organizations, and non-governmental organizations (NGOs) agreed to a common set of principles to guide the provision of development assistance to poor countries.  By signing the Paris Declaration on Aid Effectiveness in 2005, signatories agreed to monitor their progress in improving the quality of aid provided against specific indicators, most of which have targets for 2010.  At the Gleneagles G8 Summit, the G8 committed to 'implement and be monitored on all commitments we made in the Paris Declaration on aid effectiveness, including enhancing efforts to untie aid; disbursing aid in a timely and predictable fashion, through partner country systems where possible'. In September 2008 these commitments were reiterated and reinforced at the High Level Forum on Aid Effectiveness held in Accra, Ghana. 

Some of the key elements of the Paris Declaration include: 

Transparency:  Accurate and timely information about development assistance expenditures and activities, including the amount, intent, outcomes and partners can help recipients monitor activities within their own borders, can help donors better coordinate their efforts and can empower civil society to monitor resources intended for poverty reduction. This information needs to be presented in formats that are comparable between donors and which are complementary to the reporting done by recipient countries.

Predictability:  To truly build momentum toward achieving real development outcomes, recipient countries must have a plan that includes short, medium, and long-term goals.  In order to formulate these goals, recipient countries must have an accurate sense of the total resources that will be available over the medium and long term.  This is particularly important for countries that rely on development assistance to fund social sector programs like health or education. 

Use of national systems:  When aid is integrated into the recipient country's own planning and budgeting mechanisms, it can foster sustainable local capacity and facilitate country ownership over aid.  Donor funds can be better scrutinized by developing country accountability institutions, including civil society.  The creation of parallel systems can cause heavy administrative and reporting burdens for country officials, although public financial management and procurement systems in recipient countries need to be strong for donors to use them confidently and consistently.  It is important that developing country governments create policies, budgets and systems and, where appropriate, deliver the services to develop sustainable solutions for citizens.

"Untying" development assistance:  'Tying' development assistance means that the donor provides resources but requires that the money be used to buy goods or services from the donor or from a restricted group of countries.  This requirement limits competition and can lead to unnecessarily high prices for aid-financed goods and services.  While many donors continue to tie assistance, they simultaneously demand competitive and open procurement from recipient governments. All major donors agreed in 2001 to untie their financial aid to least developed countries, but excluded the aspects most likely to be tied: food aid and technical cooperation. In the 2005 Paris Declaration, donors committed to an increased level of untying, but without any quantitative target.

A survey of progress toward meeting the Paris Declaration targets conducted for the Accra High Level Forum indicates that there have been significant advances in some cases, particularly in recipient countries, which confirms that real change is possible.  However, not nearly enough progress has been achieved to meet the 2010 targets.  An acceleration of progress is needed if the principles of the Paris Declaration to be achieved by 2010.

The Accra Agenda for Action (AAA), agreed at the High Level Forum on Aid Effectiveness represents international commitment to support the reforms needed to accelerate progress on aid effectiveness.  Specifically, the AAA emphasized the importance of strengthening country ownership over development, building more effective partnerships for development, and delivering and accounting for results.