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Does Aid Work? — for the MDGs

Poverty in Focus

Editor: Dag Ehrenpreis

International Poverty Centre (IPC)

October 2007

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Effective Aid Requires New Structures
by Roger C. Riddell, Oxford Policy Management and The Policy Practice

If the international community is serious about wanting to improve the effectiveness of aid, it would focus its attention principally on addressing the central systemic problems which continue to impede the greater impact of official development assistance (ODA). Today’s system of raising, allocating and deploying official aid remains effectively the same as that created more than 50 years ago. Especially in relation to the poorest countries, this system is no longer fit for purpose. It needs to be radically overhauled.

International conferences at which donors jointly pledge to increase their aid—and international organisations’ statistics on the total amount of aid given and the share of ODA to gross national income (GNI)—create the impression of common purpose, joint action and shared goals. The reality is sharply different as the following characteristics of the aid ‘system’ strikingly show.

Aid is provided by individual donors on an entirely voluntary basis. Each donor chooses and determines itself how much aid it will give. Repeated pledges at international conferences and summits to increase official aid are not binding on donor countries. No sanctions are imposed on countries which fail to honour their promises, only mild criticism in the peer reviews of OECD’s Development Assistance Committee (DAC), which they are at liberty to ignore.

There is no clear and predictable link between the overall amounts of aid provided and the aggregate aid needs, though the crude and partial assessments made suggest a huge gap. Hence, the potential impact of aid is reduced because insufficient aid is provided. Indeed, there is no necessary relationship between the aid requirements of individual poor countries and the amount of aid each receives.

To qualify as ODA, official aid funds must have the promotion of economic development and welfare as their main objective. However, ODA continues to be influenced by the commercial, strategic and short-term political interests of donors, reducing the share of aid to the poorest countries and raising its costs.

A major consequence is the extreme volatility in the flow of aid funds to particular countries. Recipients do not know whether the aid they will receive this year will continue to be provided five, three or even one year hence, and historical experience confirms that the amounts provided vary markedly from year to year. Aid volatility makes recipients extremely reluctant even to spend the aid they receive, particularly on recurrent costs, reducing still further its potential impact.

Nearly seven years after the UN Millennium Summit there has yet to be a country case where aid is being significantly scaled up to support a medium-term programme to reach the Millennium Development Goals (MDGs), as the World Bank pointed out in the Global Monitoring Report 2007.

Aid effectiveness is severely reduced by the growing complexity of donorrecipient relationships. Today, there are over 200 official donor agencies, more than double the number 40 years ago, and the numbers continue to rise. At least 30 recipient countries must deal with more than 40 donors.

Why does official aid continue to be provided in ways which seriously impede its potential impact? The answer lies in history. For more than 50 years, most aid-giving has been determined by the decisions of individual donors. In recent years, this approach has been complemented by what could be termed the international co-operative approach, led by the United Nations and the OECD/DAC, both concerned at the large gap between aid’s impact and its potential. However, in relation to the list of problems just outlined, both the scope and pace of reform of the aid system have been extremely limited.

In its 2005 Human Development Report, UNDP argued that “fixing the international aid system is one of the most urgent priorities facing governments… “. The main focus of attention needs to be the world’s poorest countries, those whose need for aid is the greatest. The following comprise the core building blocks of an aid system for the poorest countries in tune with the core principles of our contemporary world:

  1. The acceptance by all nation states, but particularly by the wealthier nations, of the obligation to provide assistance independent of their own commercial strategic and short-term political interests, and channelled to those countries unable, on their own, to ensure the fundamental rights, basic needs and core freedoms of their own citizens.

  2. Compulsory contributions by the rich countries, provided on the basis of their relative wealth, and pooled into an aid fund of a size sufficient to meet the total aid needs of the poorest countries, based on the aggregate assessments of their individual aid requirements. Aid funds from such a common pool would be channelled to each of the poorest countries to help meet their needs and address the financial, skills and other requirements upon which the assessment of aid needs was based.

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