NN42, June 2009

Improving Aid Effectiveness: The Need to Use Aid Where it Has the Greatest Impact
Pages 73-74



Keywords: Aid Effectiveness

Summary: This piece calls for greater attention to be paid to the allocative dimension of education aid effectiveness; i.e., ensuring that aid is allocated to the purposes likely to most effectively enhance education outcomes in recipient countries.
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Much work has been done in recent years to enhance the technical efficiency of aid delivery and use by "harmonizing" aid modalities, improving coordination, and fostering better ownership by recipient countries. This work culminated in the 2005 "Paris Declaration" on aid effectiveness. However, as shown by the September 2008 "Accra Agenda for Action", the progress towards the targets agreed for 2010 has been modest.

There are many reasons for the persistent gap between commitments made at various aid conferences and actual achievements. In addition to governance and capacity constraints in countries receiving aid, there is a lack of realism about what effective aid coordination actually takes in terms of high-level political leadership in donor countries and implementation capacity in aid agencies. There is also a tendency to gloss over that donors have different objectives for their aid, that they often have different comparative advantages (and disadvantages!) for providing certain types of aid, and that the complex democratic processes that govern aid allocation and accountability may lead to approaches that are not always easy to "harmonize". Therefore, "partnership" and slogans such as "the recipient country is in the driver's seat" may mean different things to different donors, especially in a context where aid accounts for 25%[1] of public education budgets in recipient countries, and where there in many countries is little accountability for how aid is used, while aid agencies are accountable to their national constituencies.
 
The challenges facing the Fast Track Initiative illustrate well the practical difficulties of aid coordination. However, to its credit, it represents a serious process to improve the technical efficiency of aid. There is no such ongoing process to improve the allocative efficiency, i.e., to ensure that aid is allocated to the purposes likely to most effectively enhance education outcomes in recipient countries. Not much can be gained from delivering aid more efficiently if the aid has little additionality (see below) or is not used strategically where it can most effectively help countries achieve their education goals. The effectiveness of education aid must be analyzed within such a holistic framework which both considers how the aid can help maximize the impact of total education spending including aid and covers all levels and types of education.

One reason for the scant attention to the allocative dimension of aid effectiveness is the often perceived full fungibility between aid and domestic funding. It is argued that, because money is fungible, no particular attention is needed for the use of aid as compared to domestic funding. However, the two sources of funding are seldom fully fungible, and the interaction between them is quite complex. First, as argued by Ms. Moyo in her book on "Dead Aid" (Moyo, 2009), the relatively high level of aid to Africa over several decades is likely to have impacted negatively on the countries? efforts to mobilize sustainable domestic funding for development. To what extent does aid result in additional resources for education rather than just substitute for domestic funding, thus creating aid dependency without enlarging the resource base?[2] This interesting question cannot be discussed in this short note. Suffice it to say that, for the same level of aid, the level of additionality as well as dependency created depends partly on what the aid funds.

Second, the fungibility between aid and domestic funding does not work both ways. While aid may substitute for domestic funding, domestic funding will not necessarily replace aid, should aid not be available. There are many reasons why this is the case, especially in countries with very tight public budgets and why, therefore, aid should target certain inputs recognized from well-performing countries to be high-impact inputs that are unlikely to be prioritized by domestic funding (see Fredriksen, 2008). These inputs are often "soft investments" such as policy advice, analytical work, knowledge-exchange and piloting of innovations to develop evidence-based policies and programs; capacity-building of local and regional institutions; and consensus-building among education stakeholders. In the years ahead, aid will also have comparative advantage in funding post-primary education.
 
Third, reviewing the purposes for which aid is used is essential at this time to ensure that aid priorities over the next decade evolve to reflect emerging challenges resulting from the remarkable progress since 2000 towards universal primary education. This progress suggests shifts in aid priorities, e.g., from access to primary education to equity and quality; from a single-minded focus on primary education to more attention to the other five EFA goals; from countries "on-track" to reach EFA by 2015 to "off-track"/"fragile" countries; and from primary to post-primary education and skills development.

The type of aid countries need to address such challenges is becoming increasingly intensive in knowledge and technical expertise. This reflects the sharp increase in the role of knowledge as a driver of development, and the fact that a country's capacity to harness, adapt and apply knowledge is becoming increasingly important to its development. Given the role of education in creating, adapting and transmitting knowledge, it is particularly important to ensure that education aid helps countries ensure that their education policies and programs benefit fully from the global knowledge assets.

Unfortunately, this need for high-quality technical support as an increasing share of education aid comes at a time when the aid community's capacity to deliver such support is decreasing. The technical expertise in most multi- and bilateral funding agencies is declining and technical agencies (such as UNESCO), established to provide "global public education goods", are severely underfunded (perhaps also under-performing?) There is no serious action on the horizon to address these issues or, more generally, to review the distribution of aid between financial and technical aid or between country-specific investments and ?global education good? functions. This is yet another set of aid allocation challenges that deserves more attention, especially at a time when the global economic downturn may again cause education aid to decline.


References

Fredriksen, B. (2008) The Evolving Allocative Efficiency of Education Aid: A Reflection on Changes in Aid Priorities to enhance Aid effectiveness, The World Bank, Washington.

Moyo, D. (2009) Dead Aid: Why Aid is Not Working and How There is a Better Way for Africa, Farrar, Straus and Giroux, New York.

Notes

[1] Median share of aid in education budgets in Sub-Saharan Africa in 2006 based on data for 40 countries.

[2] This substitution effect also applies to donor funding, e.g., between the FTI Catalytic Fund and IDA.