Make aid work

International aid conferences are famous for their promises and commitments, but at Accra, donors and aid recipients may finally have started to “walk the talk”.

When the news broke last spring that development aid fell in 2007 for the first time in a decade, it sent alarm bells throughout the development community. True, some of the fall was expected from a tailing-off of debt relief to some countries. Nonetheless, the trend caused concern, because even if underlying bilateral aid rose, it was now clear that donors would struggle to meet all manner of targets, from the G8 promise to double aid to Africa by 2010 to the universally agreed Millennium Development Goals.

The news promptly led to calls, including from our organisation, to get aid back on track. But while these pleas for increased quantity are justifiable, there is another challenge, namely: how to improve aid’s quality and make it more effective.

Without a doubt, the UN recommendation of 0.7% of national income is a goal that donor countries should (and often try to) benchmark. But it is also true that while there are success stories in development, after 40 years of aid, the situation of some countries appears to have worsened. Although aid levels have generally risen since the mid-1990s, so has the incidence of poverty. So clearly, it is just as important to make each dollar of aid work harder to make a real dent in poverty and boost development. Governments started to do just that when they endorsed the Paris Declaration on Aid Effectiveness in 2005. What they signed up to was a set of commitments to make development aid give more bang for the buck. The Paris Declaration set targets for 2010 for issues such as providing predictable aid, using countries’ own financial systems—versus donor-driven programmes and projects—and working together in a harmonised, cost-effective fashion. But what made the Paris agreement unique is the fact that the world’s governments agreed to track progress on meeting their commitments. Did they deliver?

A survey of 54 countries in 2008 shows there has, indeed, been progress—but not nearly enough to meet the 2010 targets. There was no overall increase in the use of country public financial management systems: since 2005—when the first baseline survey was conducted—the amount of funds that flow through country systems has increased only marginally. And this figure masks significant variations in practice among donors and within countries. In Honduras for example, US$283 million out of $331 million flows through the country’s budget execution systems, but only $88 million uses the country’s auditing systems. This means that countries like Honduras are not really in control of the funds they are supposedly given—in other words, they are not calling the shots on their own development.

In Ghana this September, the Paris principles were given new wings when an unprecedented alliance of development partners agreed to take bold steps to make aid work better for the 1.4 billion people who still live in extreme poverty. After months of negotiation, ministers at the Third High Level Forum on Aid Effectiveness (or HLF3 for short), hosted by the government of Ghana, the OECD, and the World Bank, endorsed the Accra Agenda for Action (AAA). This roadmap to better aid signals a profound behaviour change for both donors and developing countries. Its purpose is to forge the new aid business model set out in the 2005 Paris Declaration and produce real, and immediate, results where they are most needed.

The AAA calls for making aid transactions more transparent and predictable. It holds donors to task on reducing the conditions they attach to aid and “untying” aid from obligations to purchase goods and services in the donor country. It challenges developing countries to engage their parliaments and citizens, while committing donors to using recipients’ national public financial management systems as the first option to deliver aid. And the AAA multiplies the value of every aid dollar by mandating donors to work together effectively, divide labour and to ensure that they are not overcrowding some sectors while ignoring others.

Another key feature of the AAA is that it allows countries to manage their own development by increasing the predictability of aid, with donors promising to pledge medium-term funding so that recipients can effectively design, budget and implement their programmes over time. Our 2008 survey shows that in 2007, only some 66% of aid actually arrived on schedule. Take Benin, one of Africa’s poorest countries; it was due to receive $477m, but ended up with just $151m. This shortfall badly affects sectors such as health, where it is not only a matter of building hospitals, but of being able to count on reliable funding to deliver drugs and staff clinics.

The AAA aims to address other shortfalls that emerged in the survey, such as the fact that donors choices concerning whether or not to use a country’s systems do not—despite expectations—seem to depend on the quality of those systems. In other words, all the effort in institutional reform, to build strength and reliability into local systems, will not work if donors do not follow suit and use them.

It will not be easy to achieve the profound changes prescribed by the Paris Declaration and reinforced at Accra. Clearly, much will depend on letting go so that countries can get on with their own business. The survey shows that donors are reticent to lose control: in 2007, 49 developing country governments received 14,054 donor “missions”—almost one a day per country. Some countries explicitly asked for “quiet periods” to get on with their real work, but even these were not spared.

Meanwhile partner countries—in exchange for being given the reins—must become more active, exercising their leadership, strengthening their capacity, and being more accountable to their citizens on their development policies. The OECD survey shows that, so far, only one developing country out of five has operational development strategies that meet World Bank standards and less than 10% run results-oriented programmes.

Sure enough, a growing number of developing countries are implementing comprehensive and credible reform strategies. And at least some donors are making special efforts to build up the country systems by actually using them. In Zambia, for instance, there has been a 25% increase in the use of country systems since 2006. Donors are also starting to realise that using country systems can help strengthen governments in fragile states.

There has been progress in untying more aid too; today, more recipient countries can use their aid to purchase goods and services on local or regional markets, and no longer necessarily from the donor countries. OECD data show that 60% of contracts now go to companies not in the donor territory, with more than 40% of these going to companies from developing countries.

At Accra, donors made solid commitments to untie aid further—more types of aid, and to more countries. In 2001, the donors of the OECD Development Assistance Committee (DAC)—the providers of Official Development Assistance (ODA)–agreed to untie most of their aid to the least developed countries. Now, in response to the AAA, they will untie their aid to the heavily indebted poor countries. This means that aid to the 60 poorest countries is now mostly untied.

Eight DAC countries have fully untied their bilateral aid—Australia, Belgium, Ireland, Luxembourg, Netherlands, Norway, Sweden and the UK. Four others—Denmark, France, Germany and Switzerland—have untied most of their aid. The US Millennium Challenge Corporation provides its aid untied (though this is just a portion of total US aid), while the European Community opens its aid procurement to other donors on a reciprocal basis.

As a result, the share of aid recorded as untied has increased from 43% in 2002 to 53% in 2006. The proportion reported as tied has fallen from 7% to 3%. Armed with this evidence, the AAA calls on other donors to untie more aid too, notably Austria, Canada, Greece, Italy, Japan, Portugal, Spain and the US.

OECD will be tracking progress, calling members to account if the numbers don’t add up.

So what next? With the AAA, the pressure is on to deliver results. There are serious challenges ahead and rising food and oil prices and the global economic turmoil are not helping.

Yet just as there is an important link between better aid and better trade, so better development results will lead to better financing. Many donors have made commitments to significantly increase their aid in the years immediately ahead, but they must be clearer about when. Predictable assistance is needed to produce better results.

The Paris Declaration and its commitments are political undertakings. In the difficult process of implementation, real issues of power and political economy will come into play, which is why the full involvement of all stakeholders is so essential. As the AAA moves from words to action, civil society will be calling ministers to task on their progress, practices and plans.

The last paragraph of the Accra Agenda for Action sends out a powerful message: “Today, more than ever, we resolve to work together to help countries across the world build the successful future all of us want to see—a future based on a shared commitment to overcome poverty, a future in which no countries will depend on aid”. For now, we are still “talking the talk.” If the 1.4 billion people who still live in extreme poverty are to be given a real opportunity to improve their lives, then the real breakthrough will come when the governments and other participants at Accra show they have really started to “walk the talk”.

The OECD has started. The AAA is a step that will help change the way assistance is delivered so that developing countries may become strong and work their way out of assistance. That is what effective aid is all about. CG


©OECD Observer No 269 October 2008

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