In March 2005, the _Paris Declaration on Aid Effectiveness_ was signed by more than 100 bilateral and multilateral donor organizations under the auspices of the Development Assistance Committee of the OECD.<sup>21</sup> However, implementing this Declaration proved more difficult than anticipated. The Bank and other donors jointly supported policy and institutional reforms through budget support. However, efforts to harmonize donor approaches and use country systems on investment projects were lagging—especially during political crises. Donors that attached explicitly political conditions to budget support programs (e.g., many European Union countries) felt compelled to respond differently from those that focused on economic issues. By the mid-2000s, donors were becoming increasingly aware of the potential unintended consequences of their programs—budget support in particular—on the politics of governance reforms in developing countries (Thomas 2007; Langbein and Knack 2010).

How the quality of the budget process evolved in 16 HIPC countries from 2001 to 2007 is analyzed in a paper reviewing PEFA (Public Expenditure and Financial Accountability) assessments, tracking 11 different indicators (de Renzio 2011). Budget institutions improved in half the countries, but did not change, worsened or showed an unclear trend in the other half. Countries often record advances in certain dimensions but setbacks in others. Mozambique’s good performance (especially after 2004) on transparency and policy linkages is offset by changes in control and accountability. Zambia’s overall positive performance hides some backsliding in transparency, while Malawi’s deterioration is affected by all three dimensions. The conclusions drawn by de Renzio are that economic and political stability are preconditions for successful budget reforms, and that a modicum of government leadership and commitment to reforms, as well as centralized budget institutions, are important to achieve successful budget reform outcomes. The level of technical assistance seems to be less important for a successful budget reform than the overall fragmentation of aid flows and the ways in which technical assistance is delivered. Thus donor hopes of “buying” better budget governance are more likely to be enhanced by better behavior rather than by additional aid resources, which implies that this is likely to work only in countries with enough capacity and interest in reforms.

The use of governance indicators by the World Bank came under increasing criticism from experts, academics, and partner countries. Composite indices, such as the Worldwide Governance Indicators and Doing Business, are based on empirical research on the links between institutional quality and development outcomes and used by the Bank to benchmark governance performance across countries and allocate IDA funds (see above). By the mid-2000s, several papers—including an internal review by IEG (2008)—highlighted the limitations of these indicators. Several issues were raised. Composite scores such as the Worldwide Governance Indicators were relative rankings of countries within a given period and were not meant for timeseries analysis. Some indices sought to integrate multiple source indicators, each of which

> 21 The Paris Declaration rests on five principles: aid is more likely to promote development when (a) _ownership_ : developing countries exercise leadership over their development policies and plans; (b) _alignment_ : donors base their support on countries’ development strategies and systems; (c) _harmonization_ : donors coordinate their activities and minimize the cost of delivering aid; (d) _managing for results_ : developing countries and donors orient their activities to achieve the desired results; and (e) _mutual accountability_ : donors as well as developing countries are accountable to each other for progress in managing aid better and in achieving development results.  In a parallel development, the European Union issued a Joint Statement in 2006 and approved a Code of Conduct for its Member States in May 2007. See OECD, 2006 _Aid Effectiveness Survey on Monitoring the Paris Declaration_ .

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