Does linking aid disbursement to a results agenda (outcome-based conditionality) actually build recipient ownership and development effectiveness? This report for the European Network on Debt and Development (EURODAD) analyses the different interpretations of outcome-based aid delivery adopted by the World Bank (WB), International Monetary Fund (IMF) and the European Commission (EC). It examines EC experience in piloting the approach in Burkina Faso, Mozambique and Tanzania. Outcome-based conditionality is a strategic step towards giving recipients ownership of their own development. However, experience is limited and it is hard to tell if there has been real impact on poverty reduction.
Ownership and mutual accountability between donor and recipient governments have become the new development mantra following the 2003 Rome and 2005 Paris conferences on aid. However, the continued use of old-fashioned conditionality on financial operations undermines the implementation of these principles. Outcome-based conditionality is a new approach linking aid disbursement to achieved or promised development impacts (results) as opposed to recipient policies (actions). Three multilateral donors claim to have adopted outcome-based conditionality: the WB, the IMF and the EC. However the WB only uses outcomes to measure progress rather than to determine funding, and the IMF continues to use structural conditions – which are policy actions – rather than outcome indicators. Only the EC has tied disbursement to outcomes and opened policy space for recipients.
Experiences and challenges in using outcome-based conditionalilty to date are that it has:
- Promoted a results-based approach and helped develop poverty reduction indicators
- Catalysed a stronger recipient government focus on poverty reduction, although it is unclear whether this has translated into poverty impacts
- Not been strong enough to create incentives for poverty reduction
- Streamlined the number of conditions to be met by recipients
- Contributed to improved policy dialogue between donor and recipient governments, although this has been offset by donors aggregating their conditions into common conditionality frameworks
- Been hindered by: insufficient funds to create incentives (only three per cent of the EC’s development budget is linked to outcome-based conditions); insufficient availability and disclosure of data; multiple challenges relating to indicators and targets; and limited engagement of civil society.
Innovations in delivery are required to break the cycle of aid dependency and to increase country leadership in deciding poverty reduction policies. Outcome-based conditionality is innovative, being based on a contractual agreement drawn from internationally agreed indicators, rather than on one-sided conditions. However, it is too early to say if it can achieve real poverty reduction impacts or a more balanced relationship between donors and recipients. Policy recommendations are:
- Phase out policy-based conditionality so that outcome-based conditionality can realise its potential
- Allow recipient governments to lead a more inclusive process of choosing outcome indicators
- Monitoring should include qualitative as well as quantitative aspects of poverty reduction
- Data should be collected and displayed in ways that strengthen downward accountability, instead of serving only recipients’ and donors’ monitoring and evaluation purposes
- Data should be collected annually but disbursement decisions should be made every three years
- Introduce less mechanistic links between targets and disbursement so that governments can implement and monitor the approach more easily.