> Accueil

Role of donors in Aid volatility and how to reduce it

18 September 2006

A new report commissioned by Save the Children UK on the “predictability” of aid money finds that aid remains unpredictable and volatile with disbursement rates varying immensely from donor to donor and country to country. This is the case for both project aid and programme aid, loans and grants, though as this research has shown, the consequences of unpredictable programme aid are much more severe and have a greater impact on many recipient countries than unpredictable project aid. This is supported by research evidence from several developing countries. The research has found that aid is twice as volatile in fragile states as in other LICs, yet fragile states include some of the countries furthest away from achieving the MDGs. This is a critical group of countries where aid predictability is of utmost importance.

With respect to individual donors, the Scandinavians are the leaders in terms of volumes of aid as a percentage of GNI, but have plenty of room for improvement in terms of timely disbursements of aid, with an average percentage of programmes not being disbursed on time over the period 2002-04 of 39.4% for Norway and 47.4% for Sweden. Norway is the only bilateral donor showing improvements in both the percentage of programmes that are disbursing funds in full each year, and in the total percentage of volume of committed aid actually being disbursed on time. By contrast, the Netherlands has seen improvements in the percentage of programmes that are disbursing funds in full each year, but has seen some variation in the total percentage of volume of committed aid actually being disbursed on time, though this has consistently been in excess of 85%, although a quarter of their programmes over the period did not disburse in full. Sweden continues to experience some fluctuations in both the percentage of programmes that are disbursing funds in full each year with on average, only 50% of all programmes disbursing all their funds on time, and in the total percentage of volume of committed aid actually being disbursed on time, with an average over 2002-04 of 25% not being disbursed on time.

The UK exhibits the greatest variability in its performance across the three years. It is disbursing a far greater quantity of aid as budget support compared to the other donors, meaning that when it does disburse funds late, the negative monetary impact this has on recipient countries is significant. In 2003, only 57% of the total amount of the programme commitment was actually disbursed, with the undisbursed component totalling more than the combined budget support programme commitments due to end in 2003 of The Netherlands, Norway and Sweden. The UK does show significant improvement in 2004, disbursing over 98% of funds on time, although this only corresponded to 8 out of 11 programmes fully disbursing on time. Without data for the most recent years, it is not yet clear if this improvement is a trend or a one off, and even if it is a trend, it is important to point out that even a small percentage of the total budget support commitment remaining undisbursed by the end of a programme can correspond to a significant volume of aid given the sheer volume of the UK’s budget support programmes, thus having a negative impact on the recipient country’s recurrent budget. On average over the period, 17.8% of the volume of UK funds was not disbursed, and 55.3% of the number of programmes was not disbursed in full. Thus there is significant room for improvement in performance for the UK if it is going to continue to provide similar levels of aid as present in the form of budget support.

This research uncovered the fact that there is no data available in the OECD DAC database on World Bank disbursements, and this information could not be found on the World Bank website either. This shows that the World Bank is the least publicly transparent donor in relation to aid volatility. For the EC, data in the OECD DAC database was incomplete making it impossible to undertake specific analysis based on DAC data, although evidence from other studies clearly shows the EC’s poor track record in providing aid in a timely manner. Hence, improvements in the way in which data is submitted and reported within the DAC database are certainly needed by all donors are to hold donors to account on timely disbursements of aid.

In relation to the global funds, the GFATM health fund seems to have a good track record for disbursement with the EFA-FTI Catalytic Fund falling further behind and only disbursing around 55% of committed funds during 2005. Information was impossible to find on the US-initiated MCA and the PEPFAR, both of which seem to have been slow to disburse funds. By contrast, the Bill and Melinda Gates Foundation has disbursed approaching US$6 billion for global health initiatives in developing countries since its inception, though this money is not included in ODA, as it is a private foundation distributing largely through NGOs and research institutes.

The authors primary recommendations are for donors to provide longer-term more predictable aid; for the establishment of a formal public reporting system on donor performance regarding aid disbursements; for conditionalities to be transparent and applied to future commitments in a sustained or graduated manner;   and for donors where appropriate, to provide technical assistance and funding through a variety of channels if this is likely to increase the effectiveness of aid and countries’ absorption capacities, a particularly important issue in fragile states.  

To make better use of existing aid and to mitigate the damaging effects of unpredictable aid whilst donors adapt their practices, recipient countries have two main options: to discount aid disbursements based on past performance, and to use foreign reserves to act as a buffer stock when aid flows remain unpredictable. These are very much second best solutions, and are not able to make aid any more predictable. Thus the onus is very much upon donors to take on board the initial set of recommendations with the warning that if they do not, this is likely to severely impact the ability of developing countries to reach the MDGs by 2015.   

Full report : 383 Kb