DFI, April BUILDING CAPACITY FOR MUTUAL ACCOUNTABILITY Matthew Martin Development Finance International ECOSOC DCF Preparatory Meeting Vienna, 20 April 2007

DFI, April STRUCTURE Introduction and Context Why Capacity is Important Current Levels of Capacity in LICs Current Efforts to Enhance Capacity The Way Forward

DFI, April INTRODUCTION AND CONTEXT HIPC Capacity-Building Programme works at demand of 36 HIPCs to unleash capacity to manage government financing (orig. debt relief) Funded by six DAC donors (Austria, Canada, Ireland, Sweden, Switzerland, UK) Capacity-building organised in country by sustainable regional organisations run by developing countries – and executed by 150 developing country experts (South-South) Presentation based on country views and much wider paper on DCF prepared for UNDESA For more details see finance.org and finance.orgwww.hipc-cbp.org

DFI, April WHY CAPACITY IS IMPORTANT Ownership: no chance of genuine “ownership” (preferably leadership) unless have designed and implemented own strategies Sustainability (long-term): cannot depend eternally on TA and donor funding for consultants to monitor Mutual Accountability: impossible to hold donors accountable unless capacity to monitor, analyse and negotiate improved behaviour Ensuring Alignment: is lack of capacity to be used as an excuse (“only align if capacity to produce results”) ? Avoiding complacency ? Paris Indicator 4 comes out of recent survey as 43% country-led though DCR expresses doubts on the results (+ no quality indicator). HIPC country evaluations indicate <20% both country-led and building capacity

DFI, April RECENT/CURRENT CAPACITY LEVEL Broadest possible definition of capacity-building: political, institutional, individual – commitment/institution-building, training etc HIPC CBP assesses capacity of 36 countries annually on 1-5 scale (5 highest) Countries assess own capacity to maximise ownership, analyse next steps and partners which could help Then quality-controlled by implementing agencies to ensure realistic Divided into three major categories:  Back office – recording/monitoring  Middle office – analysis and strategy design  Front office – capacity to implement and negotiate  Issues cut across all offices - eg managing for results

DFI, April AID CYCLE ANALYSIS POLICY STRATEGY COORDINATION/ MOBILISATION NEGOTIATION RECORDING/ MONITORING PFM/ PROCUREMENT EVALUATION

DFI, April RECENT/CURRENT CAPACITY LEVEL Back office: major/accelerating improvement since 2001 Middle office: considerable improvement but lags behind Front office: began higher but slower improvement

DFI, April CURRENT EFFORTS TO ENHANCE CAPACITY Level and Progress Reflect Capacity-Building Efforts by International Community Back office:  Major effort put into recording – DAD/AMP/DCR plus inclusion in Commonwealth Secretariat debt system  Outstanding issues  only just starting to monitor quality/effectiveness issues and adapt software ?  Insufficient transfer of software design/maintenance to countries

DFI, April CAPACITY-BUILDING EFFORTS (2) Middle office  Design of aid policies  Mostly written/facilitated by consultants, negotiated with donors  Too closely linked to Paris criteria, not enough adapted to country problems eg conditionality, shocks, donor volatility/variability  Limited to overall principles and processes  Design of aid strategies  Virtually no countries have designed a detailed strategy for negotiating alignment by each donor, as well as forecasting impact of alignment on aid needs/effectiveness + development  Must be major focus of future capacity-building for alignment  Analysis of macro- and micro-level absorptive issues  Macro, Dutch Disease – dominated by IMF, excessive caution  Micro – not enough analysis of aid cycle and blockages

DFI, April CAPACITY-BUILDING EFFORTS (3) Front office:  Public financial management (budgeting, accounting, auditing) – WB/PEFA  Procurement – OECD/WB  Too dominated by donor perceptions of best practice and of partner performance – much more mutual discussion needed to enhance ownership  Coordination and Mobilisation – UNDP/WB – more need to focus on Results and Resources and big picture rather than sectoral plans etc  Negotiation of New Financing – WHO IS DOING ?  Key need is building capacity to negotiate alignment

DFI, April CAPACITY-BUILDING EFFORTS (4) Location of Capacity  Far too much for Ministries of Finance and Planning  Insufficient support to parliaments (finance, planning and sectoral committees), decentralised agencies (states, municipalities), independent bodies such as auditor-general/national audit office, civil society  Generally these stakeholders therefore assess based on non-results issues  (AfDB Study) – results are achieved where parliament, decentralised agencies, other bodies such as auditor-general, and civil society have capacity to monitor and analyse RESULTS and mechanisms to hold government accountable

DFI, April BUILDING CAPACITY FOR MUTUAL ACCOUNTABILITY: WHAT NEXT ? Mutual accountability can spring only from country-run (government + civil society) design of national aid strategy Thereafter countries monitor donors – not self-reporting – to compile National Compendia of Donor Practices, complementing Paris Surveys to set baselines Compare with Global Compendium of Donor Best Practices, to agree annual targets with each donor Negotiate greater alignment of each programme or project, refuse bad funding (“free riders”) Diversify (for most LICs) or rationalise donors Improve government own performance and be held accountable not just by donors but by parliament and civil society Publicise donor progress to hold mutually accountable, use independent monitoring to resolve tricky issues Monitor progress and refine strategy as needed

DFI, April WHAT ELSE IS NEEDED ? 1.DONOR POLITICAL OPENING: Clear demonstration that countries can go beyond Paris both in breadth and ambition, agreement to bilateral targets 2.PARTNER POLITICAL COMMITMENT: Honest discussion with donors, will to hold accountable and be held accountable by civil society, and to learn from best practices in other countries 3.GLOBAL INFORMATION:  Analyse global issues eg allocation criteria, scaling up, orphans  Global Compendium of Donor Best Practices (drafted)  Exchange information (at regional and international level) on relative performance of multilaterals, NGOs, vertical funds, “emerging” donors Without dramatic reinforcement of evaluation, analysis and negotiation capacity, supported by donor openness and partner commitment, little chance of genuine mutual accountability, alignment or attainment of MDGs