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Application of the Performance Based Allocation System (PBA) to Fragile States Edward Anderson, Karin Christiansen and Rowan Putnam Poverty and Public.

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Presentation on theme: "Application of the Performance Based Allocation System (PBA) to Fragile States Edward Anderson, Karin Christiansen and Rowan Putnam Poverty and Public."— Presentation transcript:

1 Application of the Performance Based Allocation System (PBA) to Fragile States Edward Anderson, Karin Christiansen and Rowan Putnam Poverty and Public Policy Group, Overseas Development Institute Meeting of EU+ IDA Deputies, June 19th 2007, Berlin

2 Summary of Presentation Background Definitions and categories of fragile states Overview of IDA aid to fragile states, Does the PBA allocate enough IDA resources to fragile states? What would be the implications of adjusting or fine-tuning the PBA? Conclusions and recommendations

3 Background The PBA is the mechanism used to allocate IDA resources across eligible countries; Under 14 th IDA replenishment (FY2006-FY2009): –US$31.5bn (SDR 21 billion) to be allocated –across 81 low and lower-middle income countries As with systems used by other donors, PBA allocates IDA resources on the basis of performance and need.

4 Background (cont.) Key features of the PBA: –use of Country Policy and Institutional Assessment (CPIA) scores to measure performance; –large weight attached to performance relative to need; –additional emphasis given to governance component of CPIA in measuring performance; –additional assistance given to post-conflict countries, for limited period, over and above normal PBA allocation.

5 Definitions of fragile states Fragile states: –poor countries + weak governance, conflict and/or insecurity More specific LICUS definition (World Bank): –low-income countries + low Country Policy and Institutional Assessment (CPIA) scores*: CPIA less than 2.5 = severe LICUS/fragile state CPIA 2.5 to 3.0 = core LICUS/fragile state CPIA 3.0 to 3.2 = marginal LICUS/fragile state

6 Relevant categories of fragile states Post-conflict: countries emerging from violent and protracted conflict (IDA definition); Conflict-affected: recently experienced, are experiencing, or are widely regarded as at risk of experiencing, violent conflict (World Bank definition); Not conflict-affected: all other fragile states; Non-accrual: repayments to IDA are overdue by more than six months; Other distinctions, e.g. on the basis of development performance, natural resources, prospects for reform.

7 Categories of fragile states, FY Post-conflictConflict-affectedNot conflict-affected AfghanistanCambodiaNigeriaCameroonPap. N. Guinea AngolaC. African Rep.Solomon Is.ChadS. Tome e Pr. BurundiComorosMyanmarDjiboutiTogo Congo (DRC)Cote dIvoireSomaliaGambiaTonga Cong (Rep.)Guinea-BissauSudanGuineaUzbekistan EritreaHaitiTajikistanLao PDRVanuatu Sierra LeoneLiberia(13)MauritaniaYemen Timor-LesteNigerZimbabwe (8)(16) Pop = 126mPop = 282mPop = 135m Notes: Under-lined countries were in non-accrual status for at least part of period. Population data refer to 2005.

8 IDA net disbursements to fragile states, (1) US$ million* % of total IDA net disbursements US$* per capita per year All fragile states3, post-conflict1, conflict-affected not conflict-affected1, All IDA countries20, Notes: *Constant 2004 prices. Source: OECD-DAC (2007)

9 Net disbursements to fragile states, (2) % of total multilateral % of total multilateral and bilateral IDA as % of total multilateral IDA as % of total bilateral and multilateral All fragile states post-conflict conflict-affected not conflict-affected Source: OECD-DAC (2007)

10 Disbursements from World Bank Trust Funds to fragile states US$ million, % of total IDA to fragile states Countries benefiting Post-Conflict Trust Fund Burundi, Comoros, Congo (DRC), Congo (Rep.), Cote dIvoire, Haiti, Nigeria, Sierra Leone, Somalia, Sudan, Tajikistan, Timor-Leste (12) LICUS Trust Fund Central African Rep., Comoros, Cote dIvoire, Haiti, Liberia, Somalia, Sudan, Togo, Zimbabwe (9) Source: World Bank staff

11 Estimated IDA allocation norms under IDA14 Notes: *India, Indonesia and Pakistan; **includes regional projects, arrears, tsunami and Iraq. Source: Authors simulations. % of all IDA resources % of IDA resources, not including capped-blend or special purposes All fragile states post-conflict conflict-affected68 - not conflict-affected23 Capped-blend*20- All other countries5576 Special purposes**8- Total100

12 The PBA and fragile states: key questions addressed 1)Does the PBA allocate enough of total IDA resources to fragile states, given: –IDAs objectives, i.e. to raise standards of living in the less- developed areas of the world (IDA Article 1) –evidence of the effectiveness of aid to fragile states in achieving those objectives. 2)If not, how the PBA could be adjusted or fine-tuned to bring about a more appropriate allocation?

13 Insights from poverty-efficiency approach Approach proposed by Collier and Dollar (2002): –allocate aid so as to achieve largest possible reduction in poverty; Assumes that: –aid affects poverty through its impact on economic growth; –effect of aid on economic growth higher in countries with higher CPIA scores and in post-conflict countries; Approach justifies higher allocations to countries with higher CPIA scores, and to post-conflict countries – as in the PBA; But PBA still under-allocates to fragile states in comparison with a Collier-Dollar poverty-efficient allocation.

14 Further considerations IssueKey questionAssessment IncentivesAllocate on the basis of performance to increase incentives for improving performance? Limited evidence and one size fits all critique Take-upWould higher allocations to fragile states lead to higher actual disbursements? No strong evidence to suggest not, but needs research Absorptive capacity Are fragile states able to absorb additional disbursements? No strong evidence to suggest not, but again needs research Other donorsShould IDA allocations be adjusted to take account of other donors? Other donors allocate similar shares of aid to fragile states – suggests no adjustment Sources of evidence Are econometric estimates of aid effectiveness reliable? Not the only source of evidence, but not obvious that they over-estimate

15 Further considerations (cont.) IssueKey questionAssessment Aid-growth relationship Are the Collier-Dollar findings reliable? Do factors other than CPIA scores matter? Not unreasonable to use Collier-Dollar findings, although more research required Direct aid- poverty links Can aid reduce poverty directly, as well as through growth? Probably, but evidence remains limited Windows of opportunity Can aid be used to promote policy turnarounds? Possibly, but evidence preliminary and main effects are from TA Country disadvantages Should IDA give additional resources to countries facing inherent disadvantages? Perhaps, but would have mixed implications for fragile states

16 Allocations to post-conflict countries IssueKey questionAssessment EligibilityWhich countries should qualify for exceptional post-conflict allocations? Need for open discussion about which indicators and thresholds to use AllocationHow should aid be allocated among post-conflict countries? Use of different performance indicators raises problems; alternative is to use a post- conflict enhancement factor DurationFor how long should post-conflict countries receive exceptional allocations? Evidence that current period of assistance (4+3 years) is too short

17 Implications of adjusting or fine-tuning the PBA Advantages of the PBA: simple formula, transparent, and linked to empirical evidence But still possible to adjust or fine-tune the PBA to achieve a more desirable allocation Three main sorts of adjustments considered here: –changing the weights attached to existing indicators in the PBA formula; –adding new indicators and/or enhancement factors to the PBA formula; –altering the way post-conflict countries are treated.

18 1. Changing the weights attached to existing indicators Share of IDA resources to fragile states* (%) A Existing PBA formula (baseline) 24 B Smaller governance factor (exponent reduced from 1.5 to 1) 26 C No governance factor (exponent reduced from 1.5 to 0) 29 D Smaller weight to country performance (exponent reduced from 2 to 1) 29 C+D No governance factor and smaller weight to country performance 32 *Not including resources allocated to capped-blend countries or special purposes

19 2. Adding new indicators and/or enhancement factors Share of IDA resources to fragile states* (%) C+D No governance factor and smaller weight to country performance (baseline) 32 E Add infant mortality as indicator of need (exponent set at 1) 38 F Measure GNI per capita in US$ PPP (exponent set at minus 1) 35 G Enhancement for small-island states (enhancement factor set at 1.5) 32 H Enhancement for land-locked countries (enhancement factor set at 1.5) 31 *Not including resources allocated to capped-blend countries or special purposes

20 3. Changing the way post-conflict countries are treated Share of IDA resources to post-conflict countries* (%) IExisting PBA formula (baseline)14 J Add a post-conflict enhancement factor (factor set at 1.25) 7 K Add a post-conflict enhancement factor (factor set at 2) 17 *Not including resources allocated to capped-blend countries or special purposes.

21 Summary and conclusions Fragile states currently receive around 20% of total IDA resources, while post-conflict countries receive around 10%; There is evidence to suggest that these shares are too low; Potential ways to raise the share of IDA resources allocated to fragile states include: –reducing the size of the governance factor in the PBA formula; –reducing the weight attached to performance relative to need; –adding additional indicators of need.

22 Summary and conclusions (cont.) There is a case for exceptional allocations to post-conflict countries: –a post-conflict enhancement factor (PCEF) provides a simple and transparent method to achieve this, although care needed when setting the level of a PCEF; –evidence that existing duration of exceptional allocations to post-conflict countries appears too short. Areas where further research is required: –research on aid effectiveness and absorptive capacity in post-conflict countries, and in countries with high economic vulnerability; –research on links between IDA aid allocations and actual net disbursements.

23 Thank you for listening Edward Anderson Poverty and Public Policy Group, June 19th 2007


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