Proliferation of donors and increasing fragmentation of aid call for better coordination with the recipient government
Aid coordination refers to the established mechanisms and arrangements that country governments and their development partners have agreed upon in order to maximize the effectiveness of external aid. The Paris Declaration (March 2005) and the Accra Agenda for Action (September 2008) also highlighted aid coordination as a key to enhance its effectiveness. The aim of coordination is however not limited to “aid effectiveness” but also covers “development effectiveness”.
While talking about overall performance of international development cooperation, there have been significant changes in the aid landscape over the years. Both the donors and the recipient countries have developed common concerns on fighting poverty, hunger, inequality, climate change and bringing change in the lives of poor people. But experts believe that improved coordination between donor governments and multilateral aid organizations could make global development assistance even more efficient and effective.
Proliferation of donors in recent decades, and fragmentation of aid among an increasing number of countries and projects, has increased calls for coordination. Despite the global attention on aid effectiveness, surveys indicate that limited progress has been made towards this end. Aid coordination has become increasingly important globally as the number of development partners, funding levels, channels and implementers has multiplied and the risk of duplication has increased.
In the Nepali context, there are several challenges to aid effectiveness. The biggest of them is aid fragmentation. One development partner, on average, is involved with at least eight line ministries. Aid fragmentation often imposes heavy burden on developing countries like Nepal and reduces the sustainability and value of the aid received.
Judicious division of labor among donors and reducing fragmentation of aid requires strong ownership of development agenda at the country level. Development partners must also strive to reduce the number of agencies and their activities in different sectors. It is time to look critically at the fragmentation of aid and to foster the capacity of governance systems to adjust so that donor presence can be optimized.
Sector-wide approach could be extended to areas beyond health and education. Aid is best aligned when it is integrated into the country’s own planning and budgeting mechanisms. Development partners can ensure that their funding is well used by helping to improve the recipient government’s systems for public financial management. But for this aid will have to go into national budget. This helps strengthen the capacity of developing countries to measure the real results of their policies and programs.
According to a recent development cooperation report, only 65 percent aid is disbursed through national budget, so 35 percent aid money is still channeled from the outside. This means a significant amount is being spent without adequate coordination with the government.
Improving the predictability of aid is vital to enable countries to manage their own development process. Most aid-recipient countries have only limited information about external resources they can expect in a given year, let alone for the following two to three years. But if they are to produce sound medium-term budgets, they need to know how much they will be receiving, and for how long.
Similarly, donor coordination is vital as different donors have different comparative advantages in terms of delivery mechanisms, sectors and resources.
Though all development partners have a common agenda of helping Nepali people, they may have different interests. While Nepal needs smarter risk-mitigation techniques, development partners also need to be prepared to take more risks, recognizing that this will increase returns. They should look to minimize risk jointly rather than avoiding it altogether. Increasing use of country systems to channel aid should thus be a priority.
The Development Cooperation Policy 2014 attempts to internalize the global agenda of aid effectiveness together with fixing thresholds for projects, setting priority areas for aid utilization and spelling out of donors/government roles and responsibilities. It also calls for a joint donor-government strategy to outline the areas of donor engagement.
Though there is the system of monitoring and evaluation for better use of development cooperation, the system is dysfunctional. This has resulted in poor disbursement and weak or delayed implementation of development projects.
Nepal has established effective donor coordination mechanisms such as Local Development Partners’ Meeting, Nepal Portfolio Performance Review Mechanism, Nepal Development Forum and various sectoral reviews. These mechanims provide forum for dialogue between development partners and the government, and platforms to discuss effectiveness and efficiency of aid.
Establishment of Aid Management Platform in the Ministry of Finance and regular publication of Development Cooperation Reports are positive developments that will help with both transparency and aid coordination. In the same way, operationalization of high level policy implementation committee under the leadership of Finance Minster could be yet another vehicle for better aid coordination in Nepal.
The author is associated with Aid Management Platform in the Ministry of Finance