Transition Financing: Building a Better Response

OECD-DAC
2010

Summary

How can donor agencies best provide the effective, rapid and flexible finance to post-conflict countries that is most needed? This publication outlines the findings of mapping studies on international aid in ‘transition’ (i.e. post-conflict) countries. In relation to transition financing, donors must reform their policies and procedures to ensure long-term but targeted support. The mix of financing instruments used needs to be relevant to the capacity and legitimacy of government counterparts.

The findings are based on: (i) a desk review of donor policies and procedures, and existing funding instruments in specific countries; (ii) a literature review and analysis of DAC and Financial Tracking System financial data; and (iii) interviews with key informants from DAC member countries and multilateral agencies. The report adopts the term ‘transition’ to describe countries transitioning out of conflict towards sustainable development.

Levels of aid flows for transition activities are unclear. There is a lack of consensus as to what activities constitute transition activities. There is, however, agreement that money does not flow in a timely and effective manner to the highest-priority transition needs.

  • An aid architecture system divided into humanitarian and development compartments limits effectiveness in transition situations. Humanitarian and development activities are governed by differing rules and principles despite being complementary in nature.
  • Many donors do not have the procedural flexibility to provide effective and rapid support to transition situations.
  • Coordination with and amongst different parts of donor governments remains a challenge.
  • Multi-donor trust funds (MDTFs) have been helpful in enabling development partners to engage more holistically and strategically in transition environments. However they often need to overcome major challenges such as the trade-off between quick delivery of services and capacity building.

To facilitate more effective international engagement in transition situations, donors need to focus less on the instruments and approaches available within particular managerial structures and more on the actual objectives to be supported. It is important to adopt a long-term, non-linear approach to transition and to use an appropriate ‘funding mix’ of financing instruments relevant to the capacity and legitimacy of government counterparts. Further recommendations are to:

  • Improve donor policies and procedures – specifically staff capacity and incentive structures in agencies: Donor agencies also need to better manage and mitigate risks associated with transition financing.
  • Improve efforts to measure transition financing across instruments and modalities: Donors should acknowledge the importance that non-development assistance funds play in transition and better record such funding. The OECD’s Development Assistance Committee should revise its coding system to better reflect these non-ODA activities.
  • Identify the right priorities and objectives: Undertake timely and realistic planning based on a proper needs assessment and a prioritised vision of what should be achieved.
  • Base the choice of transition financing instruments on a clear understanding of the ways that different funding approaches and mechanisms affect national ownership.
  • Improve the operation of pooled funding: International partners should commit to decreasing fragmentation, improving the participation of national authorities in the governance of funds, clarifying and managing expectations about what can be delivered through pooled funds, increasing the predictability of funding flows, and decreasing the earmarking of contributions into funds.

Source

OECD-DAC, 2010, 'Transition Financing: Building a Better Response', Organisation for Economic Cooperation and Development (OECD), Paris