Aid warehouse in Sudan: unclear aid commitments mean recipient governments cannot budget effectively (photo: Zohra Bensemra/Reuters)
AID EFFECTIVENESS FORUM
Ministers from over 100 countries, heads of international financial institutions, donor organizations, and civil society organizations from around the world will gather for the Third High Level Forum on Aid Effectiveness.
In months of preparation for the September 2-4 event, the IMF staff has worked with others to help define a consensus on the meeting agenda, in particular stressing the need for predictable aid flows
The Accra meeting comes at a crucial moment: it is just past the midpoint to the 2010 target date set by the Paris Declaration on Aid Effectiveness, and halfway toward the 2015 deadline for reaching the Millennium Development Goals (MDGs) set by the United Nations.
Besides reviewing advances in, and assessing obstacles, the High Level Forum aims to broaden the aid effectiveness dialogue to newer actors and chart a course for strengthening the aid effort. Progress will not come easily. The past three years have shown how difficult it is to bring about all the necessary changes to the processes, preferences, and priorities that have governed the actions of donors and recipient countries for decades.
"It's an important meeting," says Elliott Harris of the IMF's Policy Development and Review Department, who has been the IMF focal point in the preparatory process for Accra. "It is an opportunity to deepen implementation of the Paris Declaration by establishing an action-oriented agenda—the Accra Agenda for Action."
Why aid predictability?
Enhancing aid predictability remains one of the central challenges of the aid effectiveness agenda. Developing countries need firm and reliable commitments of available financing over the medium term to do their own planning and to link development strategies with budgetary frameworks and ensure aid money is used effectively.
Clear indications of the amount of resources likely to be available enable recipient governments to identify gaps, establish realistic performance objectives, and ultimately manage the aid effectively to achieve measurable development results.
Donors, too, need clarity about how their aid will be used. When recipient countries have a consistent track record of implementing clearly identified development policies and programs, donors have the confidence that their partner countries will continue implementation over the longer term, and will further strengthen and improve their systems for managing all public resources effectively.
Lack of predictability prevents effective planning and implementation of development programs. In aid-dependent countries, it often obstructs consistent implementation of appropriate macroeconomic policies and the effective management of the macroeconomic impact of aid.
When aid commitments are unclear, or not made in time, governments cannot budget effectively. When actual donor financing falls short of commitments, recipient governments cannot honor their own spending commitments without incurring domestic or external debt, both of which have adverse effects on their macroeconomic performance.
Challenges to aid predictability
Many factors impede predictable aid. In most donor countries, aid budgets are appropriated annually, making it difficult to pledge support formally over the medium term. Aid allocation criteria are sometimes not well defined and vary over time, and donor agencies are increasingly required to demonstrate how past aid has been used before making longer-term commitments for the future. And, as donors increasingly concentrate their support on certain priority countries, it becomes difficult to provide predictable commitments to other countries.
Yet there are many current examples of how predictability can be enhanced. Even if unable to make firm pledges beyond the current budget year, donors can make indicative commitments that are adequate for planning purposes. Effective support for building the capacity of partner country institutions and systems can enhance the transparent and effective use of public resources.
Greater capacity can also improve the overall management of aid, generating longer-term aid commitments and helping prevent slippages that disrupt disbursements. Moreover, donor conditionality that is based on the principles of simplicity, criticality, feasibility, and parsimony can be formulated to support country ownership and program alignment with partner country priorities, thus minimizing its contribution to a lack of predictability.
Aid predictability and the IMF
For the IMF, enhancing predictability is one of the most important aspects of the aid effectiveness agenda. The IMF has been working toward that objective in a variety of ways.
At the country level, the IMF helps to enhance predictability by clarifying the budgetary disadvantages and adverse macroeconomic effects of unpredictable aid flows. The IMF supports country efforts to strengthen public financial management systems and to deepen the operational content of the national development strategies so that donors know what policies and programs their assistance would support over the medium term.
The IMF can also indicate to donors when a country's systems and policies would enable it to manage successfully the macroeconomic implications of high aid volume. Scaling-up scenarios are used to formulate policies to manage future aid flows effectively, but they also help demonstrate the opportunity costs of unpredictable aid in terms of forgone expenditure and potential disruptions to macroeconomic stability.
Negative impact
At the international level, the IMF has called repeatedly on donors to enhance the predictability of their aid commitments, pointing out the negative impact of aid volatility on country efforts to scale up toward the MDGs. More recently, the IMF has ,with the Organization for Economic Cooperation and Development , co-chaired a think tank that has produced several concrete suggestions on enhancing aid predictability.
Finally, progress that the IMF and the World Bank have made in rationalizing and streamlining conditionality provides a framework for overall donor conditionality consistent with country ownership. This promotes successful program execution and can contribute to enhancing the predictability of future aid commitments.
Comments on this article should be sent to imfsurvey@imf.org
