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Key Text Aid Allocation and Fragile States

Author: M McGillivray
Date: 2005
Size: 12 pages (149 KB)

Summary

How can donors provide poverty reducing and efficient aid allocations, particularly in relation to fragile states? This paper, written for the Senior Level Forum on Development Effectiveness in Fragile States, summarises research on aid allocation and effectiveness, with a particular focus on fragile states. It presents these findings in the broader context of how aid is and should be allocated in developing countries.

The premise that aid is more effective in countries with better policies and institutions has been a dominant force behind donor allocations. Aid can lead to higher growth in these countries, allowing donors to maximise poverty reduction and make quicker progress towards the Millennium Development Goals. However, there is an increasing move towards selectivity, with donors concentrating more aid on poor performers. Aid allocation to fragile states is a growing concern.

Historically, fragile states have received less aid relative to need and absorptive capacities than most, and some - categorised as 'aid orphans' - have received far less than others. In addition, fragile states have received the most volatile and unpredictable aid flows. Aid to the most fragile states has typically been the most volatile. Inconsistent aid allocation has exacerbated the problems of growth and poverty reduction in these countries.

More aid needs to go to poor countries than currently does, but donors face some challenges if aid allocations are to be poverty efficient in fragile states. Key points are:

Under-aiding or over-aiding can result from lack of donor co-ordination.
Aid orphans receive very little media and diplomatic attention, even though there is a high risk of them falling into instability.
Conventional aid instruments can be problematic in fragile states.
Risk adverse donors do not invest in fragile states but the risk of non-intervention is rarely considered.
The weak capacity and risk of instability in fragile states means that there is a need for careful sequencing of reforms and donor engagement.
Only once a minimum level of capacity is reached can other infrastructure and technical assistance be effective.

Donors need to resolve the co-ordination problem that leads to donor orphans and excessive aid flows. Further considerations are:

The absorptive capacity constraints in fragile states should be urgently addressed, such constraints can result in aid being harmful, reducing growth and increasing poverty.
The level at which aid becomes counterproductive needs to be clarified.
More aid could be provided to organisations that are not directly involved with the government, such as NGOs, private corporations or independent service authorities.
More research is needed into effective aid modalities and the optimal sequencing of aid in fragile states. Investments in human capital, working with civil society and the private sector, technical assistance and service delivery are all appropriate at different stages of interventions.
The effectiveness of aid can depend on a range of different variables, but are not given sufficient consideration by donors. For example, there is evidence that structural vulnerability and political stability are important for aid to be effective towards poverty reduction and economic growth.
It should be recognised that growth is not the only benefit of aid; other positive impacts include the prevention of instability and conflict, improvements in human rights and the promotion of human development.

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Source: McGillivray, M., 2005, ‘Aid Allocation and Fragile States’, World Institute for Development Economics Research, UNU, paper presented at the Senior Level Forum on Development Effectiveness in Fragile States, OECD-DAC, 13th-14th January, London