Aid and Trust in Country Systems
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Obstacles to achieving Paris Declaration targets
T
he 2005 Paris Declaration on Aid Effectiveness
sets targets for increased use by donors of
recipient country systems for managing aid. A
consensus view holds that country systems
are strengthened when donors trust recipients to
manage aid funds, but undermined when donors
“micro-manage” aid through their own separate
parallel systems. Despite this consensus, there are
many obstacles to achieving the Paris Declaration
targets.1
The Paris Declaration encourages donors to make
greater use of recipient’s public financial management
(PFM) systems, specifically in the areas of budget
execution, financial reporting, auditing, and
procurement. Where these systems are sufficiently
weak, however, donors will have little faith that aid
funds will be put to productive use. The choice then may
be between managing aid through parallel systems
accountable to the donor, or providing no aid at all.
aid but for only 5% of aid from the US, according to
results from the OECD-DAC’s Paris Declaration
Monitoring Survey.3 These sorts of disparities
suggest that a closer look into donors’ incentives is
warranted.
Donors confront tradeoffs among aid objectives
Even if donors agree that increased use of country
systems will improve aid effectiveness and
development outcomes overall, they may still face strong
incentives to bypass country systems. Donors typically
have multiple motives. They value development
outcomes, but they are also concerned about the success
(or perceived success) of their own aid projects. “Donor
agencies benefit from the visibility associated with
separately managed and “branded” projects… where
more programmatic multi-donor ventures are introduced,
visibility is lost and the attribution of development results
to the particular donor’s support becomes problematic.” 4
The development benefits from using country
systems (and thereby strengthening them) will be
Quality of countries’ PFM systems, not surprisingly, long-term and diffuse, while the costs—in the form
turns out to be an important determinant of donors’ of increased risks to project success—are short-term
and specific to the donor.
use of those systems. Figure 1 shows, for 28
countries in Sub-Saharan Africa, the positive
From this perspective, achieving the Paris
relationship between the share of aid managed using
Declaration’s targets on use of country systems can
country PFM systems and a World Bank indicator of the be viewed as a collective action problem among
quality of budgetary and financial management. The
donors. In general, then, donors’ use of country
Paris Declaration recognizes that there are limits to
systems is likely to be sub-optimal. An individual
donors’ willingness to rely on untrustworthy systems, donor will want to “free ride” to some degree on other
and accordingly includes targets for strengthening
donors’ contributions to the “public good” of
PFM systems, with the help of technical assistance
strengthened systems, in their efforts to minimize risks
provided by the World Bank and other donors.
to their own projects and programs.
Even where PFM systems are not so weak, donors’
Figure 1. Use of PFM systems in AFR mean, by Q13 values
use of parallel systems is sometimes encouraged by
government officials within recipient countries.
Central ministries typically prefer that aid be managed
via country systems, but line ministries often face
different incentives. Projects with parallel funding and
4
management mechanisms can generate benefits for the
ministers and civil servants in whose sectors they are
3
located, in the form of “salary top-ups, allowances,
vehicles, training and travel opportunities and
2
prestige.”2
0
20
40
60
80
Use of country systems is not wholly determined,
however, by recipient country characteristics or
Donors will rely more on strengthened systems
preferences of their officials. Reliance on country systems
varies dramatically across donors. Country
procurement systems are used for 68% of the UK’s
Human Development and Public Services Research
Percent of aid using PFM systems
Source: OECD (2008)
econ.worldbank.org/programs/hd_and_public_services
Figure 2. Use of PFM systems in public support for aid
rely more on country systems in managing its aid
where it accounts for a larger share of the recipient’s
total aid.
Providing a large share of a recipient’s aid is not
the only factor that may raise a donor’s reputational or
other stakes in a country’s long-term development.
Other things equal, a bilateral donor may be more
willing to invest in the long-run development of its
former colonies, and its geographic neighbors. Data
analysis shows that donors’ reliance on country
systems increases with geographic proximity of
recipient countries, but is no higher in former
colonies.
Implications for donors
Reducing aid fragmentation is commonly
advocated as a means of reducing transactions costs
imposed on recipients. Results summarized here
As noted above, however, some donors “free ride”
suggest it would also increase use of country systems.
in this sense much more than others. Moreover, use of
Sharper division of labor geographically may be
country systems varies across recipients for a given
donor, to a greater degree than can be attributed to politically difficult for some donors. But many of the
benefits from reduced fragmentation may apply at the
differences in quality of their PFM systems. How
sector level. Even with many donors in a country,
can these variations in donor behavior be
sectoral division of labor can increase a donor’s
explained?
reputational stake in the success of a given sector, such
Donors differ in their mandates and constituencies as education.
Incentives within aid agencies should also be reAnalysis of the Paris Declaration Monitoring Survey
examined with the goal of ensuring that time horizons
data provides several insights. First, “type” of donor
of their personnel are not overly short. Staff incentives
matters. Multilateral donors on average rely more on
country systems in managing aid, consistent with the should be appropriately balanced between short-term
goals such as disbursing funds quickly and
fact that they were established in part to get around
minimizing risks to ongoing projects, and long-term
some of the political constraints to aid effectiveness
goals of strengthening country PFM and other public
confronting bilateral aid agencies. Among bilaterals,
management systems.
DAC members make greater use of country systems,
Finally, the arguments and results summarized
likely reflecting in part “peer pressure” to conform to
here confirm the importance of donors’ provision of
the DAC’s aid effectiveness messages and objectives.
technical assistance and other support for PFM
Among DAC members, use of country systems is
reforms, as reflected in the Paris Declaration itself.
greater in countries with stronger public support for aid
as measured by cross-national opinion polls. Figure 2
Stephan Knack, Lead Economist
depicts this positive relationship for 14 DAC bilateral
sknack@worldbank.org
included in Eurobarometer’s surveys. Where support
for aid is relatively weak, aid agency officials will be
under more pressure (1) to show that the funds they
are provided are not stolen, diverted or misused, and Notes
(2) to produce visible results directly attributable to its
efforts, precluding the use of budget support and
1 Knack, Stephen, and Nicholas Eubank. 2009. “Aid and
discouraging use of country PFM systems.
Trust in Country Systems.” World Bank Policy Research
Source: Eurobarometer and OECD (2008).
Donors may have an “encompassing interest” in
some recipients
2
Where there is only one donor aiding a recipient
country, it “internalizes” all of the benefits of its
investments in strengthening country systems. More
generally, a donor’s interests will be better aligned
with long-term development objectives where it has a
larger share of the aid “market.” Consistent with this
view, data analysis finds that a given donor tends to
3
Human Development and Public Services Research
4
Working Paper 5005, July.
Williamson, Tim, and Zainab Kizilbash Agha. 2008.
“Stumbling Blocks or Building Blocks? The Effectiveness
of NewApproaches to Aid Delivery at the Sector Level.”
ABIA Project Working Paper No. 6. London: Overseas
Development Institute.
OECD. 2008a. 2008 Survey on Monitoring the Paris
Declaration: Effective Aid by 2010? Paris: OECD.
(www.oecd.org/dac/hlfsurvey).
Williamson and Agha. 2008 (see note 3).
econ.worldbank.org/programs/hd_and_public_services