1 Session 3: Aid instruments and the PRSP Finnish Aid in a PRS Context Helsinki Workshop May 2003

2 Shifting aid paradigms PlanningAdjustmentCDF / PRSP Market Failure Govt-led/top down Investment led Projects Planners/engineers Donors fill resource gap External TA Marginal role for M&E Govt. failure Market-led Get prices right Policy reform Economists Donor determined resource envelope Conditionality Donor monitoring of policy impl. Situation-dep. failure Country-led Institutions Pol/instit. reform Multi-disciplinary Partnerships Aid coordination Ownership Results-oriented Participatory M&E

3 When is aid effective? Aid works best where policies are owned and institutions (rules of the game) are supportive Fewer conditions and linked to performance Managed and monitored using national systems with opportunities for public participation Coordinated and aligned with national priorities

4 Past weaknesses Ex ante conditionality – a weak/ imperfect lever on policy change Hence, weak country ownership or leadership of major reform processes Projects undermined by poor policy & weak attention to systemic issues (institutions & political economy) Fungibility & poor links with national budgetary processes

5 Past weaknesses Multiple/duplicative projects defined by donor priorities; limited scale and high transactions costs: -Proliferation of PIUs -Off-budget/non-transparent aid flows Poverty focus driven by project cycles & a disbursement culture

6 Implications for external partners Effective aid requires broader agreement on country priorities Financing must be supported by policy dialogue at macro and sector levels Institutional/systemic reforms including budget processes (PEM/PFM) Rethink conditionality and the meaning of aid partnerships More focus on results

7 The new aid architecture Poverty reduction (results) overriding focus – MDGs / PRSPs Shift towards process and outcome-based conditionality (participation & voice) Emphasis on longer-term assistance Policy coherence, moving upstream, scaling-up Importance of domestic accountability

8 Aid instruments in a PRSP context Shift from stand-alone, off-budget projects towards on-budget & integrated investments aligned with national strategy Shift towards joint/pooled funding of sector programmes & general budgets aligned with national strategy Less earmarking, more emphasis on results

9 Jointly agreed indicators and common performance assessment frameworks Harmonised rules/procedures & shared approaches to risk assessment (CFAA/CPAR) Aid instruments in a PRSP context Ex ante assessments of poverty & social impacts; participation & voice (PPAs)

10 Implications Business as usual no longer acceptable Increased alignment of donor strategies, tools and practices with national PRSs Working with national systems & processes, including those for monitoring Harmonisation across external partner procedures

11 Implications Partnerships increasingly based on mutual accountability Transparent mechanisms for performance assessment (when funds are on or off) Improved assessments of country context and risks – better political analysis New aid modalities also require evaluation work, to clarify understandings and test results …

12 New aid modalities: new challenges for aid evaluation Strong arguments for general budget support, but can it be evaluated? Initial work for DFID and DAC has produced a logframe, spelling out immediate and medium-term results with a focus on institutional benefits that seem likely to improve poverty outcomes Work is continuing, to turn this into a full evaluation framework

13 Uganda pilot enquiry suggests Reduced transaction costs and greater predictability are hard to get immediately There are improvements in domestic accountability, starting with line ministries and districts answering more to budget authorities and less (directly) to donors It is hard to distinguish effects of GBS from effects of other factors

14 Key finding from Uganda Government is much clearer than most on what it expects from GBS (PEAP Vol. III) But donors use different and inconsistent concepts: a warm but fuzzy notion of partnership + quite traditional faith in conditionality to get them out of problems Need to define and agree the specific rules of behaviour that apply to the GBS club - rules about exit, voice and loyalty

15 Note For further details, see General Budget Support Evaluability Study and Glasgow Workshop Report, on the website