Public Financial Management (PFMx) Module 13 Management and Coordination of Donor Funding This training material is the property of the International Monetary Fund (IMF) and is intended for use in IMF Fiscal Affairs Department (FAD) courses. Any reuse requires the permission of the IMF and FAD.
Defining Official Development Assistance (ODA) Official Development Assistance is resource flows from donors for: Economic development Welfare of recipient countries
Types of ODA Bilateral For example: Multilateral For example:
Examples of ODA Resource Flow Grants Concessional Loans ODA resource flows In-kind Debt Forgiveness
Foundations of Modern ODA
ODA and Fiscal Policy Objectives Dislocation of the economy Lack of confidence in the local currency War effort and war maintenance
The Context of ODA Today
Magnitude of Global Aid-1 Net official development assistance, 1960-2015 Constant 2014 USD billion 180 160 140 120 100 80 60 40 Total ODA (left scale) 20 ODA/GNI (right scale) 0 1960 1966 1972 1978 1984 1990 1996 2002 2008 2014 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 ODA as a percentage of GNI Source: OECD.
Magnitude of Global Aid-2 Net ODA, constant 2015 USD billions 160 140 120 100 80 60 40 20 0 Source: OECD. Other net ODA Humanitarian Aid In-donor refugee costs 2000 2002 2004 2006 2008 2010 2012 2014 2016
Magnitude of Global Aid Constant 2014 USD billion Net official development assistance, 1960-2015 180 160 140 120 100 80 60 40 20 0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 Total ODA (left scale) ODA/GNI (right scale) Source: OECD 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 ODA as a percentage of GNI
ODA in Developing Countries ODA in Low and Middle-income economies: As a percentage of GDP (in current US$) 20 LIC MIC 15 2 1.5 10 1 5 0.5 0 1980 1985 1990 1995 2000 2005 2010 2015 Source: OECD and World Bank 0
ODA in Low Income Countries (LICs) Liberia: ODA as a percentage of GDP (in current US$) 160 120 80 40 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: OECD and World Bank.
Highest Aid Beneficiaries Top 20 Aid Beneficiaries - 2015 ODA as a percentage of GDP (current US$) 160 120 80 40 0 Tuvalu Liberia Kiribati Marshall Islands Nauru Central African Republic Micronesia, Fed. Sts. Vanuatu Sierra Leone Afghanistan Somalia South Sudan Solomon Islands Malawi Tonga Sao Tome and Principe West Bank and Gaza Timor-Leste Rwanda Mozambique Source: OECD and World Bank.
United States Agency for International Development Distribution of Aid by Region and Income, 2016 7% 5% 3% 16% East Asia and Oceania Europe and Eurasia Middle East and North Africa 13% 0.06% 48% High Income Country Low Income Country 49% Source: USAID. 20% South and Central Asia Sub-Saharan Africa Western Hemisphere 38% Lower Middle Income Country Upper Middle Income Country
ODA Delivery Modalities Budget Support Project-based Support Capacity Development
Budget Support Budget Support Direct transfer to a partner country s budget. Managed using national PFM systems. General, or Sectoral No earmarking Governed by framework agreements Related milestones
Project-based Support Project-based Support For specific development projects Sometimes disbursed through the treasury with well-functioning TSA Mostly disbursed through project accounts
Arguments FOR and AGAINST Different Modalities of ODA Budget Support Project-based Support Promotes improvements in country systems Easy tracking of outcomes Fosters domestic accountability More predictable High risk of misuse when budgetary institutions are weak Does not allow to redirect aid to emerging priority needs Slow disbursements Often involves parallel administrative structures
Arguments FOR and AGAINST Different Modalities of ODA Budget Support Project-based Support Promotes improvements in country systems Easy tracking of outcomes Fosters domestic accountability More predictable High risk of misuse when budgetary institutions are weak Does not allow to redirect aid to emerging priority needs Slow disbursements Often involves parallel administrative structures
Traditional Aid Modalities and PFM Systems Interactions: Budget Support Project-based Support If poor governance: potential abuse of donor funds If no strategy: uncertainty about results Can be more effective in low capacity environments A secure flow of resources in fragile states
Traditional Aid Modalities and PFM Systems Interactions: Budget Support Project-based Support If poor governance: potential abuse of donor funds If no strategy: uncertainty about results Can be more effective in low capacity environments A secure flow of resources in fragile states
PFM assessment tools
ODA and PFM systems ODA vs PEFA Scores 2000.00 1800.00 1600.00 1400.00 1200.00 1000.00 800.00 600.00 400.00 200.00 0.00 1.33 1.78 2.17 2.66 Average PEFA scores Source: OECD and World Bank ODA, USD millions
Donor Funding and the Budget Cycle
Donor Funding and PFM Legislation Legal Framework Approval of loan and grant agreements Requirements for data collection on aid resources Arrangements for the management of pooled funds
Donor Funding and Fiscal Framework Capture in fiscal forecasts, and debt sustainability Aid volatility is challenging Budget to include debt servicing
Donor Funding and Budget Preparation Integration into annual and multi-year budgets Avoid Dual budgeting
Challenges with forecasting aid flows
Donor Funding and Budget Execution Flow through TSA and government s systems Robust IFMIS can help Need strong procurement systems
Donor Funding and Accounting and Reporting Record in government s accounting system Adequate expenditure classification Link government systems with aid implementation units
Donor Funding and Control and Audit Audit by country s SAI Many donors have to conduct separate audits
Principles of Aid Effectiveness
Principles of Aid Effectiveness
Principles of Aid Effectiveness
Principles of Aid Effectiveness
Principles of Aid Effectiveness
Principles of Aid Effectiveness
Principles of Aid Effectiveness
Recipient Countries PFM Performance Quality of PFM systems Unpredictable aid flows Marginal increase in use of PFM systems Inability to link strategic priorities with budgeting process Diverging accountability objectives
Aid Coordination Aid complements efforts by recipient country Coordination between recipient and donor Coordination among donors Recipients take the lead Focus on donors expertise
Forms of Aid Coordination Modalities Donor side Recipient side Delegate a lead donor Co-financing arrangements Pooling of resources Donor coordination units External finance management units
Examples of Aid Coordination Modalities Basic: aid coordination committee Advanced: joint country assistance strategy No single mechanism for every situation Country context and donors requirements important Address divergences that may arise
Benefits of Effective Aid Coordination Reduced transaction cost Reaches intended beneficiaries Aid coordination Allocation among donors Prioritization and sequencing of reforms
Aid and Revenue Mobilization Reduced incentives for DRM Donor Funding Ineffective spending Dependence
Some Improvements in Aid Effectiveness 1. ODA channeled through country systems 2. Increased Budget Support Aid effectiveness 3. Better PFM systems 4. Working practices evolving
Emerging Issues Medium-term fiscal and budget frameworks Computerization of financial management systems Accounting and reporting reforms Diagnostic tools to inform design of PFM strategies Increase in technical assistance Results frameworks for programmatic approaches
Donor Funding and PFM Modalities Aid effectiveness Aid coordination ODA and PFM are complementary
Public Financial Management (PFMx) Module 13 Fragile States Sequencing the reforms This training material is the property of the International Monetary Fund (IMF) and is intended for use in IMF Fiscal Affairs Department (FAD) courses. Any reuse requires the permission of the IMF and FAD.
Defining Fragile States Experience of conflict in most recent three-year period Countries with weak institutional capacity according to World Bank Country Policy and Institutional Assessment
Fragile States according to IMF definition
Characteristics of Fragile States A diverse group 1. Low economic development Common features 2. Macroeconomic imbalances 3. Lack of public service delivery 4. Affected by conflict
Challenges in Fragile States Fragile States High levels of budget support Weak fiscal institutions Financial mismanagement Aid coordination Low public expenditure level
Pace of reforms in Fragile States Not fragile Vulnerable Post-Conflict Conflict or Disaster Wait Modernize Fiscal Institutions Basic PFM Systems Advanced Reforms
PFM reforms in Fragile States Not fragile Vulnerable Post-Conflict Conflict or Disaster Annual Budget Payment Systems and Controls Consolidation of Cash Wait Advanced Reforms Medium-term budgeting Internal Controls Accounting standards and reporting Cash and Debt Management