REINFORCING MUTUALL ACCOUNTABILITY FOR DEVELOPMENT COOPERATION IN LDCs

1. REINFORCING MUTUALL ACCOUNTABILITY FOR DEVELOPMENT COOPERATION IN LDCs Matthew Martin Director, Development Finance International and Senior Advisor, DCF DCF High-Level Symposium Bamako, 5 May 2012

2. STRUCTURE • Results of the DCF Study on Development Cooperation in LDCs • Recommendations for Reinforcing Current Mutual Acountability Frameworks for Development Cooperation for LDCs

3. RESULTS (1): TRENDS • Since Brussels, aid to LDCs has risen faster than overall aid, • Therefore has risen from 27% to 33% of total aid • Has risen from 0.06% of GNI to 0.097%, but still well below the target of 0.15-0.2% adopted in Brussels • In 2009, only 7 donors (Belgium, Denmark, Ireland, Luxembourg, Netherlands, Norway, Sweden) met the Brussels top end target of 0.2%, and only two others (Finland and UK) reached 0.15% • To reach 0.15% overall DAC bilateral donors would need to increase flows by 50% (100% for 0.2%)

4. RESULTS (2): TRENDS • Looking at key sectors, since 2002 the share of aid going to LDCs has risen sharply in agriculture and health, at the expense of middle-income countries. However, LDC share of aid to water and sanitation has stagnated, while that to education has fallen, primarily due to sharp rise in scholarships for Chinese and Indian students in OECD countries. • Some LDCs receive far more aid (“darlings”) than others (“orphans”), because other considerations such as military-strategic links, trade and investment interests, language/culture and historical factors play a strong part in aid allocations. The top 5 LDCs receive almost half of total aid to LDCs. This high concentration in a few countries has been worsening since 2005, as increasing amounts of aid have gone to Afghanistan. • This overconcentration on a few LDCs is also true at sector level: 54% of aid to agriculture went to only 5 LDCs (35% to Ethiopia and Afghanistan alone), as well as 45% of aid to health, 40% of aid to education and 38% of aid to water and sanitation.

5. RESULTS (3): TRENDS • This concentration does not reflect population size. With the exception of Afghanistan, the top 10 aid recipients per capita are countries with small populations. • Is aid targeting the countries in most need ? OECD has grouped LDCs’ into 6 clusters depending on their MDG status and progress. During the last five years, aid to the 14 countries with the lowest status and progress has risen faster than most other clusters, donors’ forward spending plans indicate that aid to these countries will rise by only 0.2% over 2010-12, much less than other clusters. • Indeed, 8 of the countries most in need (Afghanistan, Central African Republic, Chad, Haiti, Liberia, Sierra Leone, Somalia and Timor Leste) should expect aid falls. Donors are increasingly moving to reward countries which have already made progress, but at the same time risk abandoning many countries with the highest need and making the greatest efforts.

6. RESULTS (3): QUALITY • Improvements in quality of aid to LDCs – and therefore its cost-effectiveness in producing development results – are very slow: • Budget Support: disbursing aid as budget support to LDCs is the best way to promote LDC leadership in implementing national development plans, by allowing governments to allocate aid to their key priorities, and encouraging parliaments and citizens to hold the governments more accountable. Many LDCs have made major strides in improving development programmes. However, though budget support disbursed to LDCs has doubled since 2001, it has fallen from 12% to 9% of disbursements to LDCs. In addition, countries in- or post-conflict tend to receive virtually no budget support. • Use of Countries’ Own Systems: many LDCs have made dramatic improvements to PFM and procurement systems. But donors have not significantly improved use of LDCs’ own systems, continuing to run their own parallel systems. This is particularly true in countries which have seen political instability or conflict.

7. RESULTS (3): QUALITY • Improvements in quality of aid to LDCs – and therefore its cost-effectiveness in producing development results – are very slow: • Budget Support: disbursing aid as budget support to LDCs is the best way to promote LDC leadership in implementing national development plans, by allowing governments to allocate aid to their key priorities, and encouraging parliaments and citizens to hold the governments more accountable. Many LDCs have made major strides in improving development programmes. However, though budget support disbursed to LDCs has doubled since 2001, it has fallen from 12% to 9% of disbursements to LDCs. In addition, countries in- or post-conflict tend to receive virtually no budget support. • Use of Countries’ Own Systems: many LDCs have made dramatic improvements to PFM and procurement systems. But donors have not significantly improved use of LDCs’ own systems, continuing to run their own parallel systems. This is particularly true in countries which have seen political instability or conflict.

8. RESULTS (3): QUALITY • Fragmentation or Concentration of Donors ? There has been focus on countries which have “too many” donors, and are burdened by excessive numbers of projects, missions etc. This has led to efforts to rationalise donors and projects, and to encourage joint missions and analysis. However, in many LDCs the problem is the opposite: too few donors. In a recent study of “fragile states”, OECD identified four LDCs (Afghanistan, Liberia, Solomon Islands and Togo), which are dependent on one donor for at least 50% of aid.

9. RESULTS (3): QUALITY • Predictability/Volatility and Conditionality: predictable aid is vital to help LDCs plan and implement plans and budgets. Aid needs to be predictable not just by arriving in the year when it was promised, but also over the medium-term. • Only two-thirds of aid to LDCs is disbursed in the intended year. Short-term predictability depends mainly on whether donors use budget support or other coordinated government-led programmes. Over the medium-term, unpredictability is linked to excessive policy and procedural conditionalities, which delay or disrupt implementation. In a recent analysis, the OECD estimated that higher volatility in 31 LDCs is reducing the value of aid by 15%, and the countries worst affected are those with political instability or conflict. • Overall, aid quality to LDCs is less good than other countries

10. ACCOUNTABILITY FRAMEWORK PROPOSALS • LDC Eminent Persons’ Group stressed need to reinforce mutual accountability framework on development cooperation for LDCs • Paper proposes a list of targets for providers and recipients drawing on existing Brussels targets, other targets from UN (Monterrey, Doha) and OECD (Paris, Accra, Fragile States) processes • Stresses need for promoting and accelerating MA at national levels in LDCs (tomorrow morning session) • Also for regular global reviews of progress on quantity, allocation and quality of development cooperation to LDCs • Make sure all future analyses of development cooperation look closely at these issues for LDCs • Ensure that all providers are analysed in such analysis