Linking Aid Effectiveness to Development Outcomes

A Priority for Busan

Tony Addison and Lucy Scott

This article draws upon on-going conversations and debates about the aid effectiveness agenda. It discusses how the agenda can move-forwards in addressing one of its major shortcomings, the fact that it does not link the principles of aid effectiveness to the substance of what should be done to achieve development outcomes.

The Fourth High-Level Forum (HLF4) on aid effectiveness now underway in Busan, South Korea, comes at an important time for the international aid effectiveness agenda. The deadline for the Paris Declaration and the Accra Agenda for Action commitments was 2010. Busan therefore provides the opportunity to take stock of what has been achieved so far within the aid effectiveness agenda as well as to decide upon its future direction.

Aid effectiveness and success so far

The aid effectiveness agenda emphasises that it is not just the amount of aid, but also how that aid is delivered which enables these financial transfers to be successful. The Paris Declaration identified ownership, alignment, harmonization, results and mutual accountability as the key principles for effective aid. It set 13 targets to be achieved by the end of 2010. Only one of these was reached. There seems to be a vast gap between aspirations and results.

Despite the limited achievement of the Paris Declaration, the DAC points to promising trends in some of the remaining twelve targets. The proportion of developing countries with ‘sound’ national development strategies in place has more than tripled since 2005. However, advances have been significant mainly for indicators where the responsibility lies primarily with developing country governments, rather than donors. While progress has been slow, the Paris Declaration has brought an improved approach of greater accountability and learning within the aid system. Aid effectiveness does matter to achieving the objectives of development cooperation which include the Millennium Development Goals (MDGs).

Moving the agenda forwards to achieve the MDGs

An overriding limitation of the current aid effectiveness agenda is that it fails to link aid effectiveness principles to concrete development outcomes. Busan is the best, and last (before 2015), opportunity to revitalise commitment to the MDGs. To do this, discussions about the principles and processes of aid effectiveness need to be complemented by a focus on the substance of what needs to be done to achieve agreed upon development outcomes. After all, development co-operation is ultimately only a means to an end.

There should be more honesty about the limitations of the ‘ownership’ principle. The underlying assumption of many discussions is that most countries have a development-oriented leadership. This is not always the case. While ownership may be a desired outcome of aid, it cannot be a starting point for development efforts. This raises another set of questions of whether aid can assist the emergence of country leadership.

So far the focus of debates has been at the global level on overall arguments about whether aid is effective. This has neither helped nor given donors the flexibility to devise specific strategies for different country contexts. For instance, many fragile states are unlikely to be able to lead engagement with aid donors. Achieving the Paris targets of ‘ownership’ and ‘alignment’ in these contexts is not just more difficult, but may not even constitute good donor practice.

Due to the large fiscal risks which donors face they are reluctant to align their interventions with partner country’s institutions and systems. This is particularly the case where these institutions and systems are weak or lack credibility. Alignment is largely about the ability of donors to manage these risks. However, the aid effectiveness agenda offers little practical guidance on how to do this. There needs to be emphasis on the institutions and incentives which can reduce fiduciary risks and enable effective public expenditure.

Arguably contributing to the risk-aversion of donors is the motivation to ‘manage for results’. The underlying assumption of this principle is that the evidence for what works in aid, particularly at scale, is already present. However, this evidence remains thin and is not collated. Attention has focused on the development of elaborate monitoring systems. More important would be to promote an environment for mutual learning.

A lack of transparency has reduced the opportunities to find out what really works in aid, inhibiting rigorous research on its effectiveness. This lack of transparency is also an obstacle for enabling coordination of donors by recipient country governments. How can greater transparency be ensured?

Can, and should, aid effectiveness be a global agenda?

In addition to strengthening commitment to the MDGs, a second aim of the Busan meeting is to draw-up a framework for development co-operation through to 2015 and beyond. There are calls for the agenda to be broadened and deepened, to include non-DAC donors, and flows of development finance beyond aid (such as climate finance, taxation, and trade). However, if the agenda is broadened and deepened answering valid concerns about how this can be co-ordinated to ensure policy coherence is central for success. Furthermore, it cannot be assumed that aid recipients will automatically support the inclusion of non-DAC donors in the aid effectiveness agenda. They may perceive that it is advantageous for donors to compete with each other, rather than co-operate together. If the ownership principle is to be retained then recipient views must be considered.

Research for effective aid

More research is necessary to ensure that the aid effectiveness principles translate to effective aid in terms of reducing poverty and promoting development. This includes investigating the role of aid in building institutions which enable leaderships to be effective, researching effective aid for fragile states, and generating country-specific knowledge on the channels through which aid impacts on economic growth.

Rigorous research has led us to know more about the links between aid and growth than previously. However, new issues, like climate change adaptation and mitigation, raise a host of yet unresolved issues in terms of ‘what works’ in aid. In particular there is limited evidence for what works at scale and if success in one context can be transferred and replicated elsewhere. The ReCom programme, which is being implemented by UNU-WIDER Danida and Sida, will add to this evidence base and communicate what works to policy makers.

Busan has the challenge of moving the aid effectiveness agenda forwards in a new era through reaching agreement on the next set of commitments. These commitments should not just encompass global principles, but should provide guidance on how aid can best be spent in different contexts so that it can be effective at achieving development outcomes. This involves promoting an environment for mutual learning between DAC donors, as well as with new providers of South-South development co-operation, and between donors and research organizations. Central to this is creating an environment where evidence about ‘what works’ , ‘what doesn’t work’ and ‘what could work’ is shared and clearly communicated to policy makers so that it can be incorporated into development responses.

Further thoughts on aid and the HLF4 can be found here in our ReCom Busan briefing paper. The UNU-WIDER Busan briefing paper can be read here:

ReCom briefing paper: Linking Aid Effectiveness to Development Outcomes: A Priority for Busan.pdf

Lucy Scott is a Research Associate, UNU-WIDER.

ReCom – Research and Communication on Foreign Aid

WIDER Angle newsletter
November 2011
ISSN 1238-9544