Development assistance and conditionality
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This presentation was presented at the launch of the OECD report “Rethinking Regional Development Policy-making” on 19 March 2018 in Brussels. http://www.oecd.org/governance/rethinking-regional-development-policy-making-9789264293014-en.htm
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Development assistance and conditionality
- 1. Anwar Shah (shah.anwar@gmail.com), Senior Fellow, Brookings Institution, USA and Director, Center for Public Economics, Chengdu, China 19 March 2018 OECD/EC Launch Event: Rethinking Regional Development Policy- Making EC, Brussels, Belgium Development Assistance and Conditionality: Lessons from principles and practices
- 3. Input and process based conditionality has little conceptual or empirical support…1 Conceptual Approach Improving aid effectiveness Implications for conditionality Game Theory (no- cooperative strategic behavior) Address donor agency incentives and impose higher admin. cost of non- compliance on the recipient Conditionality to ensure sharing of rewards for success and risks of failures Public Choice (collusive behavior) Greater competition, voice and exit options Governance environment as a pre- requisite of assistance Fiscal Federalism (shared objectives but conflicting interests and priorities) Consistency of design and objectives. Singular focus. Autonomy with results accountability. Effective institutions of intergovernmental relations Output based conditionality. General budget support less desirable for merit services. No borrowing for policy and institutional reforms
- 4. Analytical perspectives favor incentive regime for results based accountability to citizens for both donors and recipients ……2 Conceptual Approach Improving aid effectiveness Implications for conditionality Political Economy (domestic consensus for reform) Focus on recipient country institutions Political economy analysis as a pre- requisite. Conditions to facilitate coalition building for reform New Public Management (HR incentives undermine aid effectiveness) Reform aid staff and civil service culture and introduce results based management and accountability Monitor results based chain and hold donor and recipients to account for results. New Institutional Economics (Aid agencies and govt. have incomplete Citizen empowerment, home rule, direct democracy, transparency, reducing transactions costs to hold government and aid Contractually enforceable conditions through citizens based accountability. Greater role of local governments in service delivery and as primary agents of people.
- 6. Lessons from Practice: Design of Conditionality • Conditionality can be an important tool for positive inducement for commitment, ownership, mutual and citizen-based accountability. However, conditionality must be consistent with reform objectives. • Conditions and associated indicators must be , mission critical, parsimonious, objectively and accurately measurable, timely, meaningful, comprehensible, grounded in the results based chain, simple, comparable and well documented.
- 7. Lessons on the design of conditionality…2 • Program design must mitigate unintended negative consequences of conditionality. Input or process based conditionality accentuate moral hazards. Uncoordinated cross conditionality should be avoided by designating a donor institution in the lead agency role. • Fragmentation and non-predictability of assistance and non-credibility of conditions compromises development effectiveness.
- 8. Lessons on the design of conditionality…3 • Use country systems to minimize administrative burdens of recipient performance and compliance monitoring. • Results-based (output) conditionality helps mitigate strategic game theoretic responses from the recipient and donor agency staff and furthers development effectiveness of external assistance. • Donor conditions can help inclusive and sustainable development by encouraging greater transparency, results based accountability, and citizen empowerment through direct democracy and rights based approaches to basic public services.
- 9. General Lessons from Practice • Aid conditionality should facilitate network governance and partnership for development. • Instrument choice must be consistent with reform objectives. For example, loan finance and general budget support (GBS) questionable for policy, structural and governance reforms and for finance of operating expenditures of merit services. • “Government ownership” in the absence of citizen- centric governance holds no assurance of “country ownership”.
- 10. General Lessons ….2 • Better knowledge of the “reach” of development assistance helps in its effectiveness. • For results based accountability to work , HR management framework in aid agencies and government must embody results based management and evaluation. Reform of governance structures (executive boards) also critical. • Need for Arm’s-length Civil Society Evaluations: Broken information feedback loop is better overcome by higher standards of transparency and RBM rather than aid agency spending on in-house “independent” or aid agency financed evaluations.
- 11. Thankyou! Reference: Shah, Anwar (2017). Development Assistance and Conditionality: Challenges in Design and Options for More Effective Assistance. Unpublished paper, May 2017, OECD/EC.