Donors using Performance Based Allocation (PBA) systems face two difficult issues: how to strengthen incentives to produce and document development results, and how to increase flexibility for fragile states. This paper suggests: 1) implementing short feedback loops to incentivise more attention to results and to monitoring and evaluation; and 2) establishing an additional performance-based fund to allow successful projects to be scaled-up. It proposes a venture-capital model of aid in fragile states – which aims to scale-up successes while accepting that not all projects will be successful. Donors supporting fragile states need to ask not ‘How much should be allocated?’ but ‘Where can we really add value?’
There is increasing concern that development funds must produce demonstrable results in all countries. However, while needs within fragile states are the greatest, the success rate of projects achieving their goals tends to be lower in such challenging environments. Fragile states therefore achieve poor ratings in the Performance Based Allocation (PBA) system used by International Development Association (IDA) donors (and others). Simply allocating more money to fragile states, however, may risk damaging overall aid effectiveness.
The current PBA system provides few performance-related incentives for staff and projects – whether in fragile states or elsewhere. This is partly because of delays in the feedback of external evaluation results; staff members are likely to have moved on (or if over 54, to have retired) before any assessment emerges of a project they developed. In addition, the rigidity of the PBA framework has required it to make exceptions for and special allocations to fragile states. Further findings include the following:
- Projects with strong monitoring and evaluation frameworks have a higher rate of success, but most projects are currently weak in this area.
- The PBA system’s strengths include an element of insulation against politically-driven allocations, and the ability to direct funds toward countries performing better in terms of overall development outcomes, policies and institutions.
- Delays in the feedback of external evaluation results contrasts with the short feedback loops in place for fiduciary, environmental and social safeguards.
- While it may take time for project results to materialise, project design and implementation would benefit from a similarly short independent feedback system.
To work towards creating a stronger and more general link between development results and development financing in the long-term, donors could:
- Strengthen performance assessment, including projects’ M&E frameworks, and ensure timely decision-making. This would require a short-term advisory feedback loop with external input. It would focus on a project’s ability to monitor and measure potentially developmentally-meaningful outcomes and impacts. To affect incentives, the feedback loop would need a degree of independence, and its conclusions would need to be made public.
- Provide an additional project performance-based tranche to fragile states, based on demonstrated capacity to implement projects effectively, and to scale them up. This tranche could increase the potential allocation up to an upper boundary, equivalent for example to the financing the country would receive at a higher ‘threshold’ rating.
- Expand the use of the scale-up approach as results frameworks strengthen, steering funding towards better-performing projects and programmes.
