The results-based financial aid mechanisms used by the World Bank Group focus more on output and encourage transparency and accountability to achieve results
Access to reliable public services is crucial for any society to flourish but even more so for developing countries where the lack of basic necessities has resulted in everyday challenges that stunt intellectual growth and discourse. These public services have a direct effect on economic uplifting of low-income communities and include quality education, accessible healthcare, safe drinking water, essential sanitation, electricity and reliable communication systems.
Developing countries have long utilized foreign aid from international governments and agencies to supplement their own efforts for development spending. However, often dealing with corrupt regimes or private sector corruption, the donors are faced with a constant challenge of preventing the misuse of their funds. In this regard, result-based aid approaches have shown a considerable positive impact on the accomplishment of agreed-upon objectives. Various measures utilized so far include outcome-based aid (OBA), conditional cash transfers (CCTs), cash-on-delivery (COD) and performance-based contracting. The COD model is increasingly popular and sometimes considered the most effective approach among all results-based mechanisms. It focuses on demand rather than supply and offers more flexibility to recipients in how the outcomes will be accomplished. It also has the added advantage of eliminating performance risk for donors. The COD models are usually built into existing government or private programs.
The OBA is an important part of the World Bank Group’s range of result-based solutions for development finance. It can be defined as a result-based financing mechanism that promotes “the provision of basic public services by delegating the delivery of outputs, such as working water connections, to a third party (typically a private operator) in exchange for the payment of a subsidy upon delivery of specific outputs.” This is not an entirely new concept and goes back to the 1960s when South Korea was the recipient of reproductive healthcare services through OBA schemes. However, its increasing use is a welcome step towards balancing accountability with the success of a project.
This approach has been shown to work well in many sectors, including education and healthcare but is not applicable in the funding of large investments in power, mining, railways and ports. Sometimes the use of the OBA element is done only as part of a traditional project. Due to its success, the use of OBA has grown considerably in the last decade. It encourages innovation, decreases costs and promotes accountability.
The use of the OBA strategy was launched for 22 projects by the WBG in its 2002 Private Sector Development Strategy 3, with an estimated value of about US$100 million. By 2009, the number of projects increased to 127, reaching 59.5 million beneficiaries worldwide. The WB also helps pilot OBA projects through the Global Partnership on Output-Based Aid (GPOBA) launched in 2003, which is a multi donor-funded partnership program supported by the Department for International Development UK, the Netherlands, Sweden, Australia and the International Finance Corporation (IFC).
The focus of the GPOBA is public service delivery systems of healthcare, energy, water and education in developing countries for the most affected marginalized sections. GPOBA’s dedication and commitment to responsible development spending is clear from its annual report for 2013: “To date, the GPOBA has provided nearly 5.9 million poor beneficiaries with access to energy, water, sanitation, telecommunications, health and education. With total funding commitments equaling $161.3 million, GPOBA’s portfolio of projects is expected to reach over 9.7 million people.” In 2013 alone, the GPOBA “disbursed a record $25 million in subsidy funding, benefitting more than 2.3 million poor people…As a result of this excellent performance, it received the World Bank excellence awards for two projects. The Lesotho Hospital Public-Private Partnership (PPP) project was recognized by the Sustainable Development Network Vice Presidency Unit (SDN VPU) for its strength in leveraging partnerships across the World Bank Group.”
OBA schemes, which are utilized for projects in education, bridge the gap between the cost of providing quality education and the funds available. The challenge, however, lies in being able to measure the success of the project in terms of achievement and learning as opposed to just enrollment or attendance. While both aspects are equally important, they are governed by factors not necessarily in control of service providers or donors. Hence, a combination of result-based mechanisms may be employed, such as OBA and COD together, so that other than performance monitoring and verification done before subsidy disbursement, a certain amount of money may also be allocated for each extra child enrolled or for each child that successfully completes a certain level of achievement in an independent standardized testing. Such an approach gives the project a better chance of measurable success.
Four successful OBA educational schemes funded by the World Bank Group in the GPOBA report are worth a mention. These schemes aimed at achieving improvement in enrollment, attendance and quality of education for school children, as well as learning opportunities for adults. The projects included the Female Secondary Assistance Programs in Bangladesh Phase I and II (FSSAP) with subsidy disbursement at $130 million, the Lifelong Learning and Training Project in Chile with over $100 million disbursement, the Punjab Education Support Project in Pakistan with subsidy disbursement value of $77.5 million, and the Balochistan Education Support Project (ESP) worth $2.1 million. The funding sources for these programs were mainly the World Bank Group’s IDA and IBRD along with some host governments and private sector support.
The success of these projects rested on various measures and incentives provided to the targeted groups of marginalized or low-income communities, including vouchers and free tuition to students, bonuses for teachers and competitive grants for institutions, a step-by-step performance evaluation through independent testing and clear contractual guidelines on adherence to pre-established targets for an agreed-upon period of time. This commitment of stakeholders to shared goals and measurable outcomes was crucial to a successful completion of the projects.
Two energy projects in Nepal and Bangladesh supported by the WBG have also been similarly identified for their success. The Nepal Biogas Project 2003 supported the installation of 26,363 biogas plants on an OBA scheme with a strong monitoring system. A 2013 survey by Motherland Energy Group Pvt. Ltd. showed that 90 percent of the plants have remained functional since installation and retain high satisfaction among users while providing efficient and cost-effective energy solutions. Similarly, the 2002, Solar Home Systems (SHS) for the Rural Electrification and Renewable Energy Development project in Bangladesh was launched to manage power supply challenges in rural areas. It employed an output-based approach with a three year microcredit system. The World Bank Group contributed $13.95 million. The project has benefitted 2.4 million people with 480,000 SHS since.
In healthcare, a similar variety of results-based schemes have also been employed by the World Bank Group through its Health Results Innovation Trust Fund. As reported by the Organization for Economic Co-operation and Development (OECD), two polio eradication programs in Nigeria and Pakistan were successfully completed, using what is termed as a “buy-back made possible as a direct result of confirmation of immunization results, or conversion into grants of concessional loans.”
A 2009 IDA review of RBA approaches details a number of other successes in the realm of results-based aid, evident of the success of the strategy of RBF. These include “32 ongoing or closed OBA projects for which information on beneficiaries reached is available.” They have reached 17.3 million people – increasing access to energy for 5.7 million beneficiaries, providing education to 2.7 million poor children, improving healthcare coverage for nearly one million people and improving access to clean water for over 900,000 poor people. A total of 87,591 km of roads were or are being rehabilitated and maintained under projects that are currently active or closed. The 14 closed projects for which information is available have benefitted 12.5 million people. As per expectation, “Out of the 22 closed OBA projects with their ratings for Implementation Completion and Result Report available, 90 percent of development outcomes were rated either ‘satisfactory‘ or ‘highly satisfactory‘.”
The case against traditional input-based aid processes is growing as they are found lacking in many ways, causing loss of funds and missed opportunity for development. At the same time, the advantages of a result-based approach become clearer through project completion reports. A World Bank study quoted by the Center for Global development (CGDEV) found corruption to be a leading challenge to the effectiveness of traditional foreign aid for development spending. The CGDEV report details the heavy cost of traditional aid monitoring and transparency measures required for effective management: “The World Bank annually spends at least $30 million on internal audit and institutional integrity departments and suspension and sanctions boards. This does not include the cost of 417 full-time procurement and financial staff members and 200 procurement-accredited staff members who monitor compliance with financial-management and procurement standards. Nor, of course, does it account for the staff in recipient-country governments who actually implement the procurement and financial procedures.” It also noted that while traditional input-tracking programs try to control corruption by specifying what can and cannot be purchased with funds and then monitoring how money is used, “results-based programs manage corruption by only paying when results are achieved. As a result of this fundamental difference in design, results-based programs do not have direct costs associated with monitoring and controlling corruption.”
Though the OBA is also not without its challenges, and a combination of factors are required for it to be successful, the advantages still outweigh disadvantages. No case of fraud has yet been proven in a result-based program so far by any agency, though over-reporting or under-reporting sometimes present somewhat of a challenge, as does the challenge of ensuring pre-financing of outputs, especially in the private sector before reimbursements can be made based on performance. When faced with corrupt regimes, the absence of transparency in legal or regulatory arrangements is a discouraging factor for sustained development but timely intervention can save the day. An example of this was seen in an OBA project between the World Bank and a Southeast Asian country mentioned in the report by the CGDEV. The said project was cut short as soon as allegations of corruption surfaced, just in time to check any major or incurring loss.
Development planners and practitioners mostly see corruption as the amount of money diverted from a program. However, the actual extent of the cost, when measured in a failure to deliver essential services, is much greater not only for the donor but more for the recipient community that would have benefited from its successful implementation. It is no surprise then that the World Bank Group has increased the use of OBA approaches, and included them in the “2008 Sustainable Infrastructure Action Plan (World Bank 2008), the 2009 Private Sector Development (PSD) Strategy Update (World Bank 2009), and the 2007 World Bank Strategy for Health, Nutrition and Population (World Bank 2007). The sectors involved are transport, ICT, health, water & sanitation, energy, and education sectors.”
Foreign aid provides countries with limited resources the opportunity to tackle challenges of sustainable economic growth. Unless the growth benefits trickle down to those most in need, sustainable progress is not possible. However, without checks and balances established at every step of the process, many well-intended funds end up in the form of personal spending allowances stashed away in off-shore accounts or are lost to some other form of corrupt practices, such as bribes, at a heavy cost to the recipient community and donor. In order to ensure that aid is utilized to maximum benefit, early or intermediate evaluation along with RBA approaches appear to be the best way to go. Simply put, RBA is a development opportunity with accountability.
South Asia Magazine October, 2014