Effective Engagement of Accountable Local
Governments in Development Assistance
Projects
Prepared in consultation with the Government Accountability Office
By:
● Tara Baumgarten
● Michaela Meckel
● Jélan Passley
● Maria Toniolo
Outline
● Background Information
● International Trends and Overview of Use of Local
Systems
● Policy Goals
● Alternative Donor Approaches
● Evaluation of Alternatives
● Recommendations
Background
● International commitments to increase aid
effectiveness:
● Paris Declaration (2005)
● Accra Agenda (2008)
● Busan Partnership (2011)
● Aid delivered via recipient country public financial
management (PFM) and local procurement systems
● Direct budget support
● U.S. has not yet met targets for use of local systems
Percentage of Aid Using Country PFM and
Procurement Systems, 2010
100%
90%
90%
80%
70%
70%
64%
60%
66% 68%
70%
55%
50%
50%
44%
40%
29%
30%
20%
11% 12%
10%
0%
United States
World Donor
Average
Sweden
United Kingdom
World Bank
Percent of Government Sector Aid Using PFM Systems, 2010
Percent of Government Sector Aid Using Procurement Systems, 2010
Source: OECD 2010
Asian Dev. Bank
Use of Local Systems
● Increase institutional capacity and sustainable
development
● Risk Assessment
● Tools may be donor-specific, harmonized or
borrowed from other institutions
● Risk Mitigation
● Variety of approaches to respond to risks such as
corruption, poor accounting practices, and
instability
Policy Goals
● Increase the percentage of effectively managed aid
delivered via local systems
● Increase local institutional capacity
● Efficiently deliver aid
● Effectively identify and assess potential risks
throughout the project
● Effectively manage risks throughout the project
● Compatibility with the U.S. context
United States
● 11% of aid through recipient country PFM systems and
12% through local procurement systems in 2010
● Average partner PFM score of 2.17 (1 low – 6 high)
● Lack of harmonization in aid strategy
● USAID Forward
● Use of capacity assessments to strengthen institutions
and responsibly administer aid via local systems
● Public Expenditure and Financial Accountability
(PEFA) Framework
United Kingdom-DFID
● 66% of aid through recipient country PFM systems and
68% through local procurement systems in 2010
● Average partner PFM score of 3.52
● Of aid delivered via local PFM systems in 2010, 64%
was in the form of direct budget support, which
increases the efficacy of aid
DFID Risk Assessment Overview
● DFID uses three main tools to conduct assessments:
● PEFA Framework
● Evaluates six dimensions
● Fiduciary Risk Assessments
● Evaluate quality of PFM systems
● Country Governance Analyses
● Assess quality of governance and instability
DFID Risk Management Overview
● Risk Management Program
● Anti-Corruption Policy Team
● Fraud Risk-Management Group
● Managing the Risk of Financial Loss program
● Empowerment and Accountability Resource network
● Pilot Strategic Intelligence Threat Assessments
Sweden
● 64% of aid through recipient country PFM systems and
70% through local procurement systems in 2010
● Average partner PFM score of 3.65
● Of aid delivered via local PFM systems in 2010, 73%
was in the form of direct budget support
● Two main agencies: Ministry of Foreign Affairs and
Swedish International Development Cooperation
Agency (SIDA)
Sweden Risk Assessment Overview
● Transparency International Corruption Perception
Index
● World Bank’s Country Policy and Institutional
Assessment index
● Sweden’s assessments of previous involvement with a
partner country, development strategy and human
rights compliance
● Economic Intelligence Unit’s Democracy Index
● UNDP Human Development Index
Sweden Risk Management Overview
● SIDA Unit for Monitoring and Evaluation
● Performs regular audits
● SIDA Anticorruption code of conduct
● Suspends further aid disbursement until receiving
repayment of mismanaged funds
● Swedish National Audit Office and Swedish Agency for
Development Evaluation
● Monitor SIDA operations
Asian Development Bank
● 90% of aid through recipient country PFM systems and
29% through local procurement systems in 2010
● Average partner PFM score of 3.36
● Of aid delivered via local PFM systems in 2010 35% was
in the form of direct budget support
● Asian Development Fund provides grants and lowinterest loans to developing economies
ADB Risk Assessment Overview
● Country Partnership Strategy reflects the development
and poverty reduction goals of partner governments
● Performance based allocation is based on each
country’s performance and policies in place to
effectively implement ADB projects
● ADB tailors Country Partnership Strategy when
planning projects in countries with weak governance
ADB Risk Management Overview
● The Office of Anticorruption and Integrity monitors
projects and receives complaints of possible corruption
or misuse of funds
● Investigates allegations of corruption
● Power to sanction businesses and individuals
● Independent Evaluation Department determines
whether or not ADB policies and ADB programs are
successful
World Bank
● 71% of aid through local PFM systems and 55% through
local procurement systems in 2010
● Average partner PFM score of 2.27
● Of aid delivered via local PFM systems in 2010, 58%
was direct budget support
● Largest local systems donor in 2010 in absolute terms
($11 billion)
World Bank Risk Assessment Overview
● Country Financial Management Strategy based on:
● Country Financial Accountability Assessment
(CFAA)
● Public Expenditure Review (PER)
● Country Procurement Assessment Report (CPAR)
● Institutional & Governance Review (IGR)
● PEFA Framework (optional)
● Use of assessments by other donors
World Bank Risk Management Overview
● Accounting risk management
● Monitoring by financial management staff
● Corruption risk management
● Borrowers are required to report fraud and
corruption
● Borrowers can be audited at any time
● Early termination if fraud or corruption occurs
Goal 1: Percentage of Aid Via Local Systems
● Other donors lead the way in use of local systems
● Larger donors, such as the U.S. and World Bank, tend
to work with lower quality local PFM and procurement
systems on average
Goal
Impact Category
Amount of funds
managed and quality
Increase Percentage
of recipient PFM
of Effectively
systems
Managed Aid
Amount of funds
Delivered via Local
managed and quality
Systems
of recipient
procurement systems
Status Quo: U.S.
Country Approach
1: DFID
Country Approach
2: Sweden
Multilateral
Approach 1: ADB
Multilateral
Approach 2: World
Bank
Low
High
Moderate
Moderate
Moderate
Low
Moderate
Moderate
Low
Moderate
Goal 2: Increase Local Institutional Capacity
● Risk assessments may improve local systems
● Capacity building may be necessary component
● Local involvement in institutional reform important
Goal
Impact Category
Status Quo: U.S.
Country Approach
1: DFID
Country Approach
2: Sweden
Multilateral
Approach 1: ADB
Multilateral
Approach 2: World
Bank
Increase PFM system
quality
*
High
Moderate
Moderate - Low
Moderate
*
Moderate
Moderate - Low
Low
Moderate
Low
High
High
Moderate
Moderate - High
Increase
Increase local
procurement system
institutional capacity
quality
Institutional reform is
sustainable and
locally driven
Goal 3: Efficiently Deliver Aid
● Donors harmonize efforts in a variety of ways,
including assessments and large project co-financing
● Multiple large bureaucracies that handle different
types of aid may present efficiency challenges
Goal
Efficiently deliver aid
Impact Category
Status Quo: U.S.
Country Approach
1: DFID
Country Approach
2: Sweden
Multilateral
Approach 1: ADB
Multilateral
Approach 2: World
Bank
Harmonization of aid
stakeholder activities
Low
High
Moderate-High
Moderate - High
Moderate
Aid is delivered
efficiently (in terms
of time and money)
Moderate
High
Moderate
Moderate
Low
Goal 4: Effectively Assess Potential Risks
● Assessing corruption and financial risk directly is more
effective than as part of larger country assessments
● Evidenced by control of corruption scores
Goal
Impact Category
Effectively identify
and assess threat of
corruption
Effectively identify
Effectively identify
and assess
and assess potential
weaknesses in
risks
accounting practices
Effectively identify
and assess risks of
instability
Status Quo: U.S.
Country Approach
1: DFID
Country Approach
2: Sweden
Multilateral
Approach 1: ADB
Multilateral
Approach 2: World
Bank
Moderate
High
Moderate
Moderate
Low
Moderate
High
Moderate
Moderate
Low
Moderate
Moderate
Moderate-High
Low
Low
Goal 5: Effectively Manage Risks
● Active control mechanisms, quick responses, and longterm plans to mitigate risk appear most successful
Goal
Impact Category
Effectively detect and
respond to instances
of corruption
throughout the
project
Effectively detect and
Effectively manage
respond to
risks throughout the
weaknesses in
accounting practices
project
throughout the
project
Effectively detect and
respond to instability
throughout the
project
Status Quo: U.S.
Country Approach
1: DFID
Country Approach
2: Sweden
Multilateral
Approach 1: ADB
Multilateral
Approach 2: World
Bank
High
Moderate
Moderate - High
Moderate
Low
Low
Moderate
Moderate
Moderate - Low
Moderate
Moderate
Moderate
Low
Low
*
Goal 6: Compatibility with U.S. Context
● The World Bank aid scope is most similar to the U.S.
● DFID also shares similar foreign policy objectives
● Sweden is a smaller donor and may have scaling issues
● ADB has a limited regional focus but shares major
recipients - Pakistan and Afghanistan
Goal
Impact Category
Similarities of aid
profiles
and approach
Compatibility with
U.S. Context
Economic feasibility
Status Quo: U.S.
Country Approach
1: DFID
Country Approach
2: Sweden
Multilateral
Approach 1: ADB
Multilateral
Approach 2: World
Bank
N/A
Moderate
Moderate
Moderate
High
N/A
Moderate
Low
Moderate - Low
Moderate
Recommendations
● Ensure consistent and coordinated risk assessments
across countries
● Expand use of the PEFA Framework evaluation tool
● Increase cooperation with other donors
● Increased use of PEFA could help
● Consider incremental approach to use of local systems
● Start with smaller projects or components of a
partner country’s PFM system that operate well
Questions?