DA: Grading foreign aid agencies: Best practices across traditional and emerging donors

Question 1

non-DAC agencies/emerging donors: performance in best aid practices

Answer 1

• con: not required to report aid allocations > aid practices difficult to assess, less transparent
• con: ‘rogue aid’ (?)
• con:more tied-aid
• pro: less aid fragmentation - country specialization
• pro: use fewer ineffective delivery channels

Question 2

Traditional DAC-donors: performance in ‘best aid practices’

Answer 2

• more transparent reporting? or is it just due to larger size
• allocate more need-based aid

Question 3

Multilateral Organisations and UN donors: performance in best aid practices

Answer 3

Outperform DAC and non-DAC bilateral agencies.

multilateral donors are more selective, avoid dis- bursement through ineffective channels, do not fragment across as many countries and sectors, and are transparent.

perform poorly with overhead costs—this may be driven by bilateral donors using multilateral aid agencies to disperse part of their aid.

UN donors also tend to have very high overhead costs, possibly as a result of organizational structure or the type of programming.

UN agencies give aid to corrupt countries, have high overhead costs, and are not transparent.

Question 4

‘Best aid practices’ focus on…

Answer 4

• Paris Declaration (2005), Accra Agenda for Action (2008) Busan Agreement (2011): Best practices
• > quality of delivery and effective allocation
• transparency, overhead, specialization, the selectivity of aid, ineffective aid channels (tied aid, food aid, and technical aid)

Question 5

‘Rogue aid’

Answer 5

Nondemocratic and nontransparent development assistance. Typically stifles real progress while hurting average citizens.

Question 6

Easterly and Williamson (2011): five best practices

Answer 6

Transparency: ability to gather information such as employment numbers, budgetary data, and overhead costs

Specialization: the extent to which aid is divided among countries and sectors.

Selectivity: aid delivery to the poorest countries and democratically free countries while avoiding corrupt dictators.

Ineffective channels: the share of aid that is tied (food aid or technical assistance)

Question 7

Best aid practices (Easterly & Williamson) Transparency:

Answer 7

ability to gather information such as employment numbers, budgetary data, and overhead costs

>Increased accountability, better monitoring, and donor coordination

International Aid and Transparency Initiative (IATI)

Question 8

overhead costs

Answer 8

Agency’s costs relative to aid disbursements.

extremely high overhead costs suggest inefficiency within an agency since a sizable share of an agency’s budget is allocated to financing the bureaucracy as opposed to disbursing aid.

Could stem from mismanagement, the nature of the organizational structure, allocation decisions, or type of programming

three types of overhead cost indicators:

1. administrative costs
2. salaries and benefits
3. total disbursements per employee.

Question 9

Best aid practices (Easterly & Williamson) Specialization:

Answer 9

absence of specialization: “aid fragmentation” “aid proliferation”

Extent to which aid is divided among countries and sectors.

agencies allocate aid across many countries, sectors, and projects. This creates a duplication of services and a proliferation of donors and projects, which overstretches the recipient country’s capacity to manage and administer the aid and donor relations.

donor fragmentation can lead to more corruption in the recipient country, and multiple donors per country decrease growth in the recipient country

Question 10

Best aid practices (Easterly & Williamson) Selectivity:

Answer 10

aid delivery to the poorest and/or democratically free countries while avoiding corrupt dictators.

Question 11

Best aid practices (Easterly & Williamson) Ineffective channels:

Answer 11

the share of aid that is tied (food aid or technical assistance)

Question 12

4 categories of donors

Answer 12

DAC bilateral, non-DAC bilateral, multilateral, and UN

Question 13

country specialization

Answer 13

=less aid fragmentation

Question 14

non-DAC and Dac countries perform…

Answer 14

• poorly, in general
• similarly, with overhead costs and selectivity of aid
• tend to allocate aid for “self-interest” or political considerations
• Bilateral donors: give aid to higher-income countries (not income-selective), fragment across sectors, and are not as transparent as multilateral donors (once we control for agency size)

Question 15

Large x small donors

Answer 15

Large donors (as measured by ODA) tend to be more transparent and have better overhead costs

BUT more country fragmentation, more aid to non-democratic countries

larger donors fragment aid for geopolitical or strategic reasons, including “planting their flag.”

Question 16

Broader ‘political economy of aid allocation’

Answer 16

Findings regarding aid selectivity and fragmentation: bilateral DAC agencies are more exposed to political economy pressures to allocate aid for political reasons instead of development purposes.

Aid agencies continue failing to meet their own effective aid standards

Question 17

BRICS aid

Answer 17

• Based on non-interference and mutual benefits,
• less than traditional aid
• provides greater relative support for exports but less grant support compared to traditional donors.

Question 18

(Not necessary?) Chinese aid affects World Bank conditionality

Answer 18

—loans receive fewer conditions for an increase in Chinese aid.

the WB mimics the Chinese emphasis on e.g. infrastructure

Question 19

Ranking on transparency: OECD reporting

Answer 19

1. DAC
2. MOs
3. UN
4. non-DAC

Question 20

Ranking on transparency: Overhead costs

Answer 20

1. MOs
2. DAC
3. UN
4. non-DAC

Question 21

Ranking on transparency: Overall

Answer 21

1. DAC
2. MOs
3. UN
4. non-DAC

Question 22

An obstacle to aid specialization:

Answer 22

donors’ individual incentives to “plant their flags” across different countries and then “showcase” their efforts in an attempt to increase their budgets for the next year

fragmenting aid can also be rational for donors because it reduces individual donor accountability

Question 23

Conclusion

Answer 23

donors as a whole are still not following their own best practices.

non-DAC donors outperform DAC donors in less fragmenting aid

multilateral agencies consistently outperform bilateral agencies.

If donors give foreign aid based on “self-interest” reasons instead of development concerns, this could be a reason that we continue to see donor failures to meet their own effective aid standards.

Question 24

Specialisation from best to worst

Answer 24

1. multilaterals,
2. UN agencies
3. DAC donors,
4. non-DAC donors

Question 25

Ineffective Channels: the proportion of tied aid, food aid, or technical aid

worstPerformers

Answer 25

the bilateral DAC donors are by far the worst-performing group. No other subgroup of donors tied aid and most multilaterals do not provide technical assistance or food aid. Aid given through these channels is mainly politically driven instead of based on effective aid delivery.

Question 26

Overhead Ranking

Answer 26

Bilateral donors: are not as transparent as multilateral donors (once we control for agency size)