Setting the scene: major trends, drivers, timelines, and scenarios
Masood Ahmed, Director-General - DFID
Andrew Rogerson, ODI
Tony Worthington, MP - International Development Committee
1) Andrew Rogerson explored why it was important to discuss the future of aid. The present and near future was important as trends and forces are shaping the system. Forces, such as Iraq and attitudes to multilateralism have affected the fragile 2002 aid "consensus."
2) Andrew Rogerson framed the discussion by reflecting upon the main issues influencing the future of aid. One issue that had to be addressed was the credibility of the Millennium Development Goals to be a benchmark for progress. The presentation also highlighted how the aid system looks today and mainly concentrated on ODA. The system suffered from proliferation: there are some 75 agencies and the difficulty in naming the 40 bilateral, 20 multilateral or 15 UN agencies indicated that the system suffered from lack of exit coupled with a high rate of entry.
3) Four shaping forces of the aid architecture were highlighted:
· A shrinking middle on the demand side was changing the pattern of demand: Middle income countries (MICs) were no longer dependent on aid and were intolerant of intrusions into their national sovereignty.
· Donors have multiple objectives: aid was now entangled with other objectives; stability and security concerns have become muddled with poverty reduction.
· Increasing competition for official aid from NGOs changed the system: since official aid moved toward budget support, it is easier for NGOs to show the tangible benefits of their work and compete for funding.
· The last factor was institutional barriers to competition: funding agencies that receive entitlement regardless of merit can withstand pressure from shareholders.
4) Andrew Rogerson explored the conventional wisdom after Monterrey and the Achilles' heel of implementing the consensus. There was a consensus that aid had to be made more predictable, but budget support has to have a shorter focus. There was a consensus that the MDG be implemented, but too much of a focus on social spending can undercut the basis for long-term growth.
5) The aid system suffered from much unfinished business regarding development issues. There was a need to balance the drive for increased aid volume against the ability of countries to absorb aid. New forms of tied aid were presented as posing new problems for the aid system - the debate over the issuing of contracts in Iraq illustrated this. The aid system also had to reconcile selectivity and balance: if donors select countries that are good performers and allocate aid to them, then there is no balance in aid disbursement. Another factor that needed exploration was over IDA13 which raised the question of whether grants or loans were the best way to assist poor countries.
6) Were attempts to reform the architecture merely new wine into old bottles? This depended on how these new institutions were administered. It was determined that the MCA had great potential to introduce competition at high levels, but this was contingent on how it was administered. The MCA was not beyond conditionality: this created a vertical problem in that the MCA may not be complimentary to the rest of the aid system as the rest of the aid architecture makes allotments based on poverty reduction.
7) Andrew Rogerson concluded by presenting two possible scenarios for development aid by 2010 highlighting questions such as whether the poverty focus will increase or decrease and whether the UN and the EU will make more or less of an important contribution to the aid system.
8) Masood Ahmed identified four strategic policy priorities. The first was that the aid community had to get serious about improving aid delivery as the pace was too slow. DFID concentrated on second generation PRS issues, but only focused on like-minded donors. It was questioned whether the agenda could proceed without support from a wider constituency. Secondly, there was a real risk that security concerns dominated poverty reduction objectives. This must be rectified. Exclusion of failing states from aid was dangerous as it reaffirmed inequalities. Thirdly, he disagreed with Andrew Rogerson that the middle was shrinking on the demand side: instead, support for middle income countries had to increase. The current system and approaches were flawed as it did not respond effectively on either side of the middle. This area was essential as there are 350 million poor under $1 a day in MICs and countries moving into and out of MIC status. The real problem was that there was no clear vision on how to deal with poverty in MICs. Lastly, the case for increased aid had to win over the sceptics. Attention needed to focus on how fast institutions and public expenditure could shift to absorb more aid. The IFF was highlighted as an opportunity to increase aid co-ordinate aid issues.
9) Masood Ahmed elaborated on various problems in the aid architecture. He agreed that donor shareholders are 'weak owners' and that the system lacked a coherent approach. So, a key concern in DFID was to examine overall architecture and develop a vision for international development assistance that included multilateral agencies and bilateral ones. It was problematic that aid flows followed no coherent path. Another major problem was the failure of donors to take account of the presence of other donors when defining their own assistance program. Perhaps some flaws in the system could be rectified if developing countries were presented with a tool to articulate their own preferences.
10) What should the future of IDA 14 be? This topic deserved attention given its high rating of effectiveness and poverty focus. Yet to maintain its share in a growing global aid program, it must grow by 10% in real terms over three years. Nevertheless, it is important to ensure that it continues to improve effectiveness: flexibility must be built into IDA so it can change the terms of loans in response to individual country debt positions.
11) The last topic addressed was global funds and the MCA. Reconciling sector-based approaches with country based PRSs was identified as a key issue. The implementation of the MCA raised complications for the architecture as it was uncertain whether other donors would adjust their assistance to a country which is receiving large flows from the MCA. The MCA was problematic as its extensive criteria meant benefits could be concentrated. The coherence of architecture depended on the ability and willingness of donors to adjust their programs to ensure balance in overall aid expenditure.
12) A number of points were raised in the discussion:
· A clear definition of what was meant by predictability was not discussed. Predictability did not mean certainty of aid flows; rather predictability means that a country knows when aid will stop.
· There was some disagreement with regard to the role of competition. On the one hand it was questioned whether the notion of introducing competition to the aid architecture was a good thing; barriers to competition can prevent agencies from exhausting their sources of revenue and so permit strong actors to have the resources to respond quickly. Conversely, competition was seen as good as it permitted national development agencies that were unclear of how to proceed to have choice. Nevertheless, it was affirmed that competition cannot be equated to a panacea and too much of it could be negative.
· It was agreed that the excessive burdens donors imposed on developing countries overtaxed the capacity of administrations and prevented them from efficiently allocating resources. Donors had to redress this.
· There was agreement that donors should make long-term commitments to developing countries so that they can have confidence that their partners will support them in reaching long-term goals.
· It was noted that the discussion failed to address how broader trends in international relations affected the aid architecture. Effort should be made to examine how international issues, such as trade and regional forms of cooperation could affect the aid architecture.
This event discussed the issues influencing the future of aid and the credibility of the Millennium Development Goals as a benchmark for progress.