The Evolving Landscape of Development Finance Results and reflections from the first year of the OECD Global Forum on Development Louka T. Katseli, Development Centre Richard Carey, Development Cooperation Directorate

2 The (non-) system of development finance 1 Consequences for recipients 2 Challenges for donors 3 Overview Dealing with complexity 4

3 The international system of development finance is expanding Global Programmes World Bank UNDP GFATM GAVI Global Environment Facility Fast Track Initiative/ Education for All … Others, e.g. Islamic Dev. Bank NGOs International NGOs Regional dev. banks & agencies UN Specialised Agencies National NGOs in donor countries National NGOs in developing countries Multilateral Donors IMF PublicPrivate Other private non profit Private for profit 22 DAC donors Incl. bilateral development banks and agencies Other OECD donors (non-DAC) Emerging donors Bilateral Donors Foundations Households (e.g. remittances and other private transfers) Firms Commercial Banks Private Investors Observer status in DAC EC

4 Financial resources are increasing, especially to emerging economies Emerging Economies Developing countries (excl emerging) Source: UNCTAD, World Bank GEP 2006, IIF online statistics, OECD DAC

5 But is this really a system? Source: National Audit Office (UK), DIFD- Engaging with Multilaterals, London, December 2005.

6 Public and private mechanisms are proliferating Source: Kaul and Conceicao (2006)

7 Since 2000

8 Leaving us with a (non)system that is hard to manage Proliferation of donors New non-DAC and private donors Fragmentation of delivery channels

9 The (non-) system of development finance 1 Consequences for recipients 2 Challenges for donors 3 Dealing with complexity 4

10 23 donors per country … Source: DAC (2007); Cohen & Katseli (2007)

11 … but only a handful account for the bulk of aid Source: DAC (2007); Cohen & Katseli (2007)

12 Straining weak local capacities: too many projects Number of reported project commitments top ten recipients (2001–03) Number of reported project commitments all donors (1995–2003) Source: Roodman (2006)

% Donors Government Households Ministry of Health 59,2 % Health sector 27,2 % While reporting seems simple… Health financing in Ghana Source: Drechsler & Zimmermann, 2006

14 Internally genera- ted funds (13.6 %) Donors Government Households Ministry of Health Ministry of Finance (59.2%) Health Fund (14.9 %) & MoH Programme Support (12.3 %) Commercial Loans (15 %) HPIC (0.2%) Budget Support 44 % Health Sector Projects Other private spending Global prog’s FoundationsPharma industry NGOs … the reality is complex Source: Drechsler & Zimmermann, 2006

15 Donor fragmentation is costly Donor Fragmentation and the Erosion of Bureaucratic Quality Source: Knack and Rahman (2007)

16 The (non-) system of development finance 1 Consequences for recipients 2 Challenges for donors 3 Dealing with complexity 4

17 Global Forum on Development – Year I: Understanding the present development finance system Global Programmes World Bank UNDP GFATM GAVI Global Environment Facility Fast Track Initiative/ Education for All … Others, e.g. Islamic Dev. Bank NGOs International NGOs Regional dev. banks & agencies UN Specialised Agencies National NGOs in donor countries National NGOs in developing countries Multilateral Donors IMF PublicPrivate Other private non profit Private for profit 22 DAC donors Incl. bilateral development banks and agencies Other OECD donors (non-DAC) Emerging donors Bilateral Donors Foundations Households (e.g. remittances and other private transfers) Firms Commercial Banks Private Investors Observer status in DAC EC

18 Foundations as partners Conference in Lisbon, March 07 Improve mutual information sharing Deepen dialogue for a common agenda on –structural inequality? –governance & democratic accountability? –infectious diseases?  Session I

19 Global Programmes Policy Workshop in Paris, 4-5 December 06 Horizontal vs. vertical approaches Weak systemic capacities are unable to integrate vertical programmes A distortion of priorities: how well are they integrated into country strategies? Proliferation of programmes raises transaction costs and overburdens recipient-country administrations  Session I

20 Emerging Economies and Development Co-operation A big opportunity to achieve shared goals –donor diversity gives recipient countries choice But also concerns about diverging approaches to –Millennium Development Goals –Governance and accountability –Aid effectiveness and the Paris Declaration Risks to debt sustainability? (is a Debt Transparency Initiative needed?) Need for improved information flows and coordination at country level  Session II

21 Challenges for bilateral donors in 07/08 Two important years –2007: replenishment discussions for IDA, the ADF and the Global Fund –2008: reviews of the Monterrey Consensus and the Paris Declaration Following commitments, pressure to monitor performance and show results is rising Donors are thus faced with difficult portfolio decisions  Session III

22 Soul-searching multilaterals Informal Workshop in Berlin, Jan A weakening multilateral system? –UN system is weakened by ‘cherry picking’, –the IMF by a vanishing client base, –the IDA by move toward grant finance –All by too many priorities and inadequate governance structures Rethinking roles and responsibilities  Session III

23 No clear specialisation of multilaterals relative to bilaterals for half of total ODA Source: Cohen & Katseli, 2007

24 Regional Development Banks: Struggling to reconcile competing priorities Source: Ocampo, Voting power

25 The (non-) system of development finance 1 Consequences for recipients 2 Challenges for donors 3 Dealing with complexity 4

26 Is complexity here to stay? “Fools ignore complexity. Pragmatists suffer it. Some can avoid it. Geniuses remove it.” Alan Perlis The « Architect » is dead Competition has its limits But so does co-ordination

27 Improving coherence (1): Multilateral reform UN Reform: Delivering as One Broaden evaluation criteria to include core aspects of system-wide coherence and systemic capacity development in partner countries

28 Improving coherence (2): Co-ordination / division of labour German Development Institute –Towards an improved division of labour in EU development co-operation European Commission –Code of Conduct for an improved division of labour between EU Donors OECD Development Centre –Delegated co-operation based on National and Sectoral Coordination Councils.

29 Improving coherence (3): Towards coherent behaviour by Donor Countries as Portfolio Investors in the Aid Industry (buying development outcomes) Performance Assessment Systems (MOPAN, MEFF, MERA, PMF, MMS, etc.) Global Programmes: Selectivity and Governance Forward information: survey and dialogue Thinking holistically, with expanded time frames

30 Thank you