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Output-Based Aid: Lessons Learned and Best Practices, Book Launch 3/25/10


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Development practitioners are acutely aware of the need to find more effective ways to improve basic living conditions for the poor, as traditional approaches of delivering public support have not always led to the results intended.

Results-based financing instruments are now recognized as one important piece of the aid delivery puzzle. Output-Based Aid: Lessons Learned and Best Practices reviews the
experience with output-based aid, a results-based instrument that is being used to deliver basic infrastructure and social services to the
poor, often through public-private partnerships.

Published in: Education
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Output-Based Aid: Lessons Learned and Best Practices, Book Launch 3/25/10

  1. 1. Output-Based Aid: Lessons Learned and Best Practices Yogita Mumssen, Senior Infrastructure Economist Finance, Economics and Urban Department The World Bank 1
  2. 2. Outline Output-Based Aid (OBA) • What is OBA • How Does OBA Fit With Other RBF Approaches Application Of OBA • Snapshot of OBA Projects • Lessons Learned: Benefits and Challenges • Way Forward 2
  3. 3. What is Output-Based Aid? • Performance based - shifts risk to service provider • Bridges gap between cost of service and beneficiary’s ability to pay • Pro poor - aims to provide basic services to low- income households Mongolia: Access to Telephony and Internet Services 3
  4. 4. Output-based vs. Input-based Traditional Government purchases specific “inputs”, Output-Based Approach Approach builds assets and contracts out or provides services itself Inputs Inputs (such as materials) (such as materials) Commercially Structured Finance Service Service Provider Provider Public Finance Outputs Outputs (Services for End Users) OBA reimburses the service provider after the (Services for End Users) delivery of outputs. 4
  5. 5. OBA in the Context of Development Assistance OBA “Outputs” Independently verified Inputs (Intermediate) Development Outputs Design Build, Outcomes Impacts Operate OBA “Outputs” include •Water connection made & service provided •Solar Home System installed & maintained •Medical treatment provided 5
  6. 6. OBA Core Concepts • Targeting • Accountability • Innovation and efficiency • Using incentives to serve the poor • Output verification & monitoring • Sustainability Bangladesh: Electrification for Poor Rural Households 6
  7. 7. How Does OBA Fit with Other RBF Approaches? Performance bonuses OBA COD Results-based financing PBC CCT 7
  8. 8. Snapshot of OBA Projects • 2002: 32 projects identified for $1.5 billion WBG funding • 2009: 131 projects identified for $3.5 billion WBG funding (excluding $2.8billion government financing) – 66 projects identified outside the WBG – 51 Global Partnership on Output-Based Aid (GPOBA) projects, mainly in water, health and energy, of US$153 m value (committed) • Evidence base is increasing (34 projects closed, 78 under implementation) • OBA is used in both IDA and IBRD countries IDA IBRD BLEND By number of projects 58% 29% 13% By funding amount 42% 53% 5% 8
  9. 9. OBA Portfolio WBG OBA Portfolio by Region WBG OBA Portfolio by Sector (Total = US$ 3.5 billion) (Total = US$ 3.5 billion) SAR Education MENA 9% Water & 5% 1% AFR Sanitation Energy 5% 6% 33% Health 24% EAP 3% Transport LCR Telecom ECA 58% 52% 2% 2% 9
  10. 10. Lessons Learned: Benefits of OBA Approach • Explicit identification of outputs promotes targeting • OBA shifts performance risk to providers • Achieve efficiency gains through competitive processes • So far $2 of private finance leveraged for $1 of subsidy; varies by sector and region • “Internalizing monitoring” by paying on outputs Uganda: Access to Health Services • Encourages careful subsidy design for Poor Households which should contribute to a more sustainable intervention 10
  11. 11. Lessons Learned: Challenges of OBA Approach • Access to finance determines how “output-based” • Capacity to implement and monitor can be an issue • Demand risk requires more “soft” up-front investment by service provider • OBA one component of a wider set of policy instruments • Requires a supportive enabling environment for sustainability • Supporting internal environment (e.g. systems allow for output- Morocco: Connection to Water and based disbursement) Sanitation Services for Low Income • Development partner/donor co- Households in Urban Centers ordination 11
  12. 12. Comparison of Performance: OBA vs. Traditional Projects 80% 70% 60% 50% 40% 30% 20% OBA 10% Non-OBA 0% Overrun Over-achieved Achieved Under run Unclear Not (fully) achieved In Budget Results Budget 12
  13. 13. Moving Forward • Where it makes sense, scale-up OBA • To do this effectively, need to: a) address challenges, such as access to finance, capacity for implementation and verification b) integrate results-based financing within Bank operations, e.g. proposed Results-Based Investment Lending Instrument • Share lessons across RBF initiatives and work together (e.g. CCT and OBA), and also help inform new RBF initiatives (e.g. Advanced Market Commitment for Energy) • GPOBA to fund technical assistance for new initiatives and further analysis and evaluation; will provide limited subsidy support for new sub-sectors (e.g. solid waste, irrigation, sanitation) • Continue monitoring existing portfolio and sharing lessons learned, gathering results from impact evaluations currently underway 13
  14. 14. Thank You • To order the book: • For more information about OBA: Uganda: Access to Sustainable Water Services for the Poor in Selected Small Towns 14
  15. 15. Targeting 80% 70% 60% 50% 40% 30% 20% 10% 0% Geographic Targeting Means Testing Self Selection Targeting No Targeting Identified
  16. 16. OBA One-off Subsidy Portfolio by Disbursement Trigger Advance 10% Service Delivery 23% Output Delivery 67%
  17. 17. Efficiency Gains Selection of Service Providers Use of Competitive Bidding by Sector Other Water & Energy 17% Sanitation 11% 14% Health 7% Multiple service providers 13% Bidding 47% Transport 34% Incumbent Telecom provider 34% 23%