DFID’s Vision ofAid EffectivenessOwen Barder
Director of Global Development Effectiveness
FASID, Tokyo, October 2006

Learning not preaching

Page 21

What is DFID?

• All UK aid• Bilateral, multilateral, grants,
technical cooperation …
• Development policy (not just aid)
• Cabinet minister (Mr Benn)• Single mission: poverty reduction• 3000 staff; budget of $8 billion

rising to $15 billion in 2010

Page 3

Organisation chart

Page 42Planned increases in aid
 Millennium Project $194 billion a year by 2015
 Africa Commission
 $50 billion a year to Africa by 2010
 $75 billion a year to Africa by 2015
 Gleneagles G8 summit
 Additional $50 billion a year by 2010
 Of which half to Africa
 DAC estimates of commitments
 ODA will rise to $128 billion a year by 2010
 60% increase over 2004

Page 550

Aid to sub-Saharan Africa

60

35

40

30
2530

20

Total aid

20

15
1010

Aid per head ($ 2004 prices)50

40

5Constant 2004 prices

1008

20

2004
06
20

2000
02
20

20

96
98
19

1992
94
1990

1988

1986

19

19191984

080
82

0

19

Total aid ($m 2004 prices)

45

Page 6350

Aid to sub-Saharan Africa

60

Aid per head (right axis)

40

50

35403030

25
20

Total aid(left axis)

1520

1010

Aid per head ($ 2004 prices)

Total aid ($m 2004 prices)45

5Constant 2004 prices

1008

20

2004
06
20

2000
02
20

2096
98
191992
94
1990

1988

1986

1919

19

19

1984

080
82

0Page 7Is current aid effective?
 Microeconomic testimony
 Evaluations and project reviews
 Not statistically robust Aid-growth regressions
 No clear linear relationship Strong non-linear relationship High ROI
 Decreasing returns to scale Benefits other than short run growth Humanitarian, consumption
 Long run investment

Page 84

Broad consensus oneffectiveness Evidence not as good as it should be, but Aid effective at current levels, but With diminishing marginal returns
 So additional aid will be less effective
 Unless we can deliver it better And we need to show it is effective

Page 9Priority reforms
 Provide predictable aid
 Support national systems (“alignment”)
 Measure results not inputs
 Reduce earmarking to allow better resource use Harmonize and specialize
 Support economic growth Untie aid to improve cost effectiveness Be transparent

Page 105

Paris declaration• Ownership - Partner countries exercise effective••••

leadership over their development policies, andstrategies and co-ordinate development actions;
Alignment - Donors base their overall support on
partner countries' national development strategies,institutions and procedures;
Harmonisation - Donor's actions are more
harmonised, transparent and collectively effective;
Managing for results - Managing resources andimproving decision-making for results;
Mutual accountability: Donors and partners areaccountable for development results.

Web link

Page 11What is budget support?
• a transfer of resources to the partner

government’s national treasury tosupport the government’s policy andexpenditure programme• allocated, spent and accounted for by
government’s own financial management
systems• monitoring, conditionality, dialogue
always linked to financial aid.

Page 126

Programme aid
Budget support
General
BudgetSupport

SectorBudgetSupportIntegrated
Projects

Stand Alone
Projects

More alignment
Page 13

Budget support is one way toimprove aid• Automatic alignment with government programme• Broader dialogue (PFM, public administration)• Retains accountability chain• Lower transactions costs for governments andpartners• Focuses attention and capacity building efforts onnational systems• But it is not the only way to achieve these goals

Page 147

Choosing instruments
PRBS if governance works, multilaterals/other donors where possible

Range of funding
channels

IndSo ia
ut , Ch h
Af in
ric a,an,
DRC,

Vi etnamFrdaUgan

SudaTanzania,Mozambique

Poverty Reduction Strategiesntaen ism an
Y e fg hA

Fraag gileilesst tate
ates sLow-income countries withplans to reducepoverty
Low-incomecountries
withiaz
Br

Focus on countries
with greatest impact
on development andmost poor peopleMid
Mc dleiodu -ind
co nletr-i com
un ensc etri om
es e

sia
us
Rl,

Maintain links with otherMiddle Income Countries
through EU assistanceGreater use ofUN and civilsociety

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Programme aid
Budget support
General
BudgetSupport

SectorBudgetSupport

UK target:
50% by 2007/08

Integrated
Projects

Stand AloneProjectsParis target:
66% by 2010
Page 168

Joint Evaluationof budget support• Positive effects on harmonisation and alignment –effect beyond budget support• Expansions in health and education service delivery(but quality and targeting issues)• Strengthened PFM (fiscal space, efficiency,planning/budgeting)
But…
• Limited effects directly in promoting growth andreducing income poverty• No impact on domestic accountability andempowerment of the poor
• Positive effects on transparency but no evidence yetof reduced corruption

Web link

Page 17

Conclusions• Aid effectiveness is vital to poverty reduction and to•••••public support for development
Need instruments that support and do notundermine long term institutional development
Budget support is particularly effective wherepossible; but challenges in many environments.
There are other possible instruments but they must
be used carefully.
Evidence that budget support strengthens alignment,
improves governanceBut other interventions also needed to build capacity
and increase accountability
Page 189

Making aid more effective
1. Transactions costs§ limit proliferation§ use recipient systems§ link aid to results

2. Skills shortages§ minimize earmarking§ improve technical assistance§ long-term predictable aid

3. Scarcity of good projects§ scale up successful projects§ better evaluation

4. Dutch disease§ provide long term aid§ use aid for imports§ investing in competitiveness

5. Macroeconomic volatility§ less volatile aid§ more predictable aid§ save temporary increases

6. Corrodes accountability§ use process conditionality§ support PRSPs§ no additionality requirement

7. Resource curse§ aid through budgets§ publish what you pay§ information campaigns

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