Speech

When More Is Not Enough: Delivering Better Aid, Remarks by Mr. Bio-Tchané, African Department Director, at the Annual Conference of the Parliamentary Network on the World Bank, Cape Town, South Africa

March 17, 2007

1. Ladies and gentlemen, I thank you very much for this opportunity to speak on aid effectiveness at the Annual Conference of the Parliamentary Network on the World Bank.

2. This session brings together a critical topic-aid effectiveness-and a critical audience-parliamentarians. Let me speak briefly about why it is so important that aid be effective, what donors and the Fund are doing and can do to help, and especially what parliamentarians need to do.

3. More, and more predictable, aid flows are critical if the international development agenda is to move forward. As you know, the goal is to achieve the MDGs by 2015, and no one here will be surprised to learn that most developing countries are seriously off track. In Africa in particular the MDGs cannot be met if current trends continue. It is therefore of paramount importance to scale up aid and speed up action-not just to meet the goals but to meet their spirit of service to and concern for the people of low-income countries.

4. As you also know, the G7 at the Gleneagles Summit in July 2005 pledged to increase aid to poor countries by US$ 50 billion by 2010. The centerpiece and benchmark for their efforts on aid effectiveness is the 2005 Paris Declaration, in which individual countries and international organizations committed themselves to harmonizing and aligning aid delivery.

5. But just increasing the amount of aid is not enough. Aid that is driven by donor and not recipient country agendas is unlikely to be used effectively. Financial planning relies on predictable income. Nurses and teachers (like parliamentarians!) depend on a regular income stream. And unfortunately, predictability has not always been a characteristic of promised aid. Meanwhile, recipient governments in low-income countries are working hard to manage their own finances in a way that reassures donors that their aid is achieving the desired ends. But the cost of dealing with the reporting and procedural requirements of dozens of different donor administrative systems is a burden they should not be asked to bear. Besides, poorly planned and uncoordinated aid can result in adverse effects. Legitimate needs and good intentions can conflict, as when programs to increase employment and wages in the health sector attract people who might otherwise be teachers, to the detriment of the education sector.

6. That is why making aid more effective will take teamwork between donors and recipients. Donors are already making commitments to make aid less difficult to use, more predictable, and better aligned with recipient priorities. Recipients in turn have committed to implementing better policies to use aid better and more transparently. The Fund is of course committed to support both in these efforts.

7. One problem is that so far we have not seen much of the higher aid promised at Gleneagles, especially in sub-Saharan Africa. Except in Nigeria, which is far from the poorest country there, official assistance to the region edged lower in the last two years and is projected to be flat in 2007. This makes it all the more important for recipients to make effective use of the aid that is arriving. That is actually still quite substantial, averaging 9 percent of GDP and some 36 percent of government expenditures in sub-Saharan Africa as a whole (excluding South Africa).

8. The efforts donors have been making to coordinate their aid since the Paris Declaration are therefore crucial. The international community can help by closely monitoring progress in implementing the Paris and Gleneagles agreements; there are plenty of widely accepted indicators of aid effectiveness they can use to do so.

9. Ultimately, though, our experience is that recipient countries themselves really will drive the donor harmonization agenda. Where donors are coordinating their work and aid is being well used, we usually find the country itself leading the development strategy. When the recipient country has a clear vision of what it wants to achieve, donors will coordinate around this vision, as we have seen in Mozambique and Tanzania, among other places.

10. When the aid effort is genuinely led by the recipient country, we usually find several critical common factors.

• The development strategy, usually documented in a Poverty Reduction Strategy Paper or similar statement of intent, reflects recipient, not donor, priorities.
• The strategy is effectively prioritized: it states what the most important objectives are and what would be done if more money were available. When, as often happens, the wish-list greatly exceeds available funding, without a statement of priorities donors are given no guidance on what they should fund.
• The strategy has political support. Obviously this is important in its own right. Ownership by the authorities gives the strategy legitimacy and force in the eyes of donors and helps guarantee its effectiveness. This means that it should take into account important voices in civil society, but it also means that you here today, the members of parliaments, should take active responsibility for shaping, endorsing, and ultimately encouraging fulfillment of the strategy.

11. Using aid effectively takes more than a good strategy, of course. The productivity of aid depends crucially on strong policies. Sound macroeconomic fundamentals, well-directed policies, solid institutions, and private sector participation are all necessary if aid is to be effective. In a number of sub-Saharan countries, for instance, policies are better designed and institutions are stronger, but aspects of public sector management are still inadequate.

12. How can the Fund help, along with our partners such as the World Bank and the African Development Bank?

• First, the Fund can help countries prepare realistic forecasts of the medium-term profile of aid flows-medium-term for us being about three to five years, a good horizon for planning. We can also advise on how they can manage economic policy consistently with these flows and with what their economies can realistically handle.
• Second, where estimates are available on what it will take to reach the MDGs in terms of scaled-up aid flows, the Fund can help countries design scenarios to address the macroeconomic challenges that must be dealt with for each scenario.
• Third, the Fund can help countries put in place public expenditure management tools that can use aid flows more efficiently. The idea here is to build government capacity to formulate good programs and execute them well, while meeting the requirements of donors. Good public expenditure management relies on a solid domestic revenue base and an equitable tax system; as well as proper reporting, auditing, and control procedures. With these in place countries would also be better placed to deal with even volatile and undependable aid inflows-though, as I think I've made clear, we hope that those inflows will be ever more dependable and less volatile.
• Fourth, the Fund can support mechanisms under the Paris Declaration that make donors of aid and recipient countries accountable to each other and encourage all parties to regularly assess their progress.
• Fifth, the Fund can continue to participate in donor coordination efforts. Fund staff often works with donor groups in each country, giving signals on country economic performance and prospects, collaborating with the World Bank, and having an open exchange of views.

13. To conclude, let me say that now is a time of great opportunity for much of Africa. A large number of countries are pursuing economic reforms, and the international environment is favorable: global demand is strong for African products, commodity prices are high, debt burdens have shrunk, and private investors are coming. And we are seeing higher growth than we have seen for a long time.

14. But to convert this opportunity into sustained, and even higher, growth and poverty reduction will require much more work from everyone. Donors must continue their efforts to coordinate their actions and provide more, and more predictable, aid to those countries that will use it well. Making aid work in countries where conditions are less favorable remains a challenge, although there the catalytic role of aid and its ability to spur reforms may be greatest.

15. But it is of course not only about aid-success will require a vital and growing private sector, expanding exports, and banking systems that safely and efficiently convert money into investments. Developed countries need to open their markets to African exporters, while African countries need to encourage trade amongst themselves. Meanwhile, countries should continue improving their economic policies and their management of public resources. They need to maintain the fiscal discipline that will avoid future debt crises and allow the financial system to develop into a powerful instrument for development. They need to invest in health and education in order to bring the benefits of growth to all.

16. But above all, countries must be willing to take unquestioned ownership of reforms that align development assistance with country priorities. And here parliamentarians have a key role to play-in monitoring the use of aid resources and, more generally, exercising effective oversight of your country's economic policies. Parliaments can help by:

• debating the priorities of development as presented in the poverty reduction strategy of the government;
• holding the government to account in ensuring that these priorities are reflected in the budget;
• monitoring budget execution and insisting on proper auditing and reporting to parliament.

Active engagement of the international community will be crucial to making the emerging global aid framework work effectively. But all of this will only work in support of efforts that are led by the recipient countries.

I thank you for your attention.