House of Commons - DFID's Performance in 2008-09 and the 2009 White Paper

DFID's Performance in 2008-09 and the 2009 White Paper - International Development Committee Contents

5 Increased multilateral working

102. DFID makes clear that it "is strongly committed to working through the multilateral system", in particular on areas such as climate change.[177] The White Paper stated that the UK would "review and agree a new approach to multilateral funding" and that DFID would "put a higher proportion of our new resources into multilateral organisations, in response to delivering reforms".[178]

103. DFID's expenditure on core multilateral funding increased by 51% between 2003-04 and 2008-09, and by 14% between 2007-08 and 2008-09 alone.[179] The total 2008-09 expenditure on the multilateral programme of £2.3 billion represented 41% of total DFID programme expenditure.[180] The largest multilateral recipient is the European Commission (51% of the total in 2008-09), followed by the World Bank (25%) and the United Nations (11%).[181] In addition, almost one-fifth of DFID's total bilateral programme spend was channelled through multilateral organisations in 2008-09.[182]

Multilateral effectiveness

104. DFID's DSO 5 target is to increase the effectiveness of all bilateral and multilateral donors. Performance measurement is an essential element in ensuring aid effectiveness. A 2009 NAO review of DFID's performance measurement found improvements regarding multilateral aid, and areas for further work:

DFID has increased its focus on multilateral performance in recent years, and has continued to develop associated assessment tools. Its moves to secure joint assessment with bilateral partners are welcome. Current assessments, however, are still very generalised, both about the performance of a multilateral and about DFID sponsorship of that institution. There is scope to achieve greater precision by continuing the development of current tools, extending the use of customer or DFID country team feedback on multilateral performance (where multilaterals provide insufficient data about their performance), and sharpening the strategies DFID use to guide their funding and monitoring of multilaterals.[183]

EUROPEAN COMMISSION

105. DFID assesses EC effectiveness as having improved between publication of the Annual Report in July and the Autumn Performance Report (APR) in December 2009. However, the Permanent Secretary made "a big distinction" between the European Development Fund (EDF), which focused on low-income countries, and other EC aid, which was primarily targeted at middle-income and neighbourhood countries. She highlighted the improvement in the effectiveness of EDF funding which the OECD peer review had identified, contrasting this with a "more negative assessment" of other EC aid which was "more politically driven and less poverty-focused with much less supervision on the ground". She suggested that the Government had been able to "drive much better performance with the EDF" rather than other EC aid because the latter was an "assessed contribution over which we have very little choice over the amount."[184]

106. The APR confirmed that the EC is on track to meet the target of 40% of commitments being disbursed as general budget or sector support by 2010-11: it reached 39% in 2008, rising from the baseline of 30.2% in 2006. It also shows an increase in the proportion of EC aid projects scored as good/very good from 71% in 2008 to 74% in 2009.[185]

107. Policy coherence is another key indicator of aid effectiveness. The policy coherence for development (PCD) approach was launched in 2005 as part of the European Consensus on Development. It is based on the premise that development encompasses far more than aid and requires the broad range of policies, including on trade and energy, to be aligned with development objectives. The November 2009 European Council Conclusions found that the EU has strengthened its approach to PCD over recent years, but that "further work is needed to set up a more focused, operational and results-oriented approach to PCD".[186] The EU plans to "take account of development objectives in a more pro-active way" on five issues initially, with two corresponding to the White Paper themes of climate change and security, along with trade/finance, food security and migration. The Council also called on the Commission to present "concrete proposals for a focused and operational PCD work programme" in 2010.[187]

108. The White Paper gives a commitment to make poverty reduction a primary aim of EU external policy, as well as to lobby for a single development and humanitarian aid Commissioner.[188] When we asked the Permanent Secretary whether the Commission was "delivering as one", in the same way as is planned for the UN (see below), she told us that progress would "depend on what development architecture in Europe looks like after Lisbon."[189] The Annual Report suggested that progress on policy coherence for development might also depend on "the shape of the new Commission and the possible formation of the External Action Service" following implementation of the Lisbon Treaty.[190] Concerns have been expressed that the new High Representative for Foreign Affairs may have control over budgets for developing countries, that the focus on poverty reduction may be lost, and that responsibilities should not have been shifted to the new International Cooperation, Humanitarian Aid and Crisis Response Commissioner.[191]

109. We request that, in response to this Report, the Government provides us with its assessment of the likely impact of the structure of the new European Commission, its membership, and the establishment of the External Action Service, on EC aid effectiveness overall, and development policy coherence in particular.

WORLD BANK

110. The UK is the largest donor to the International Development Association (IDA), the World Bank's concessional lending arm.[192] The White Paper reported that the World Bank performs better than other multilateral organisations on both Paris Declaration indicators of aid effectiveness and against DFID assessments. The Permanent Secretary said that the World Bank had "actually done pretty well in terms of meeting the Paris targets.[193] However, an IDA review of Paris Declaration implementation found "a need for further policy change […] to move to a more systematic mainstreaming of [aid effectiveness] on the ground."[194]

111. DFID reports no real overall progress on the World Bank's aid effectiveness. There appears to have been greater decentralisation of Bank staff: the proportion of internationally recruited staff in country offices reached 29% (against a 25% target), and the share of total portfolio managed by country offices was 37% (the target being 35%). However, the Permanent Secretary said there was "quite a robust debate" going on about:

[…] whether they are actually making enough progress on decentralisation and getting more capacity and delegation in the field. That goes beyond the narrow discussion of meeting a target but actually asking are they meeting the spirit of the target whereby you have more capacity on the ground to engage with partners in the field.[195]

112. The next replenishment of the International Development Association (IDA) is approaching. In addition, as we have indicated, at least part of the huge sums for future climate change assistance are also likely to be channelled through the World Bank. It is therefore essential that DFID continues to press the Bank to increase its effectiveness and that it uses its position as the largest contributor to IDA to push for speedier implementation of the reforms sought in the White Paper on increased multilateral working.

UNITED NATIONS

113. The United Nations was singled out in the White Paper as an institution that has a "unique legitimacy and authority" globally.[196] However, the effectiveness of many UN bodies is questionable. The Permanent Secretary told us that most UN agencies had "not met the Paris targets".[197] Although the Annual Report recorded some progress with UN effectiveness, she admitted that the trajectory of improvement was "shallow" for UN agencies in particular.[198]

114. The White Paper stated that more money would be put through UN system-wide funds, subject to good performance, and that DFID's core funding for UN agencies would be linked to impact, efficiency and reform.[199] The Permanent Secretary explained how this worked:

[…] we now have five UN agencies on performance contracts, so we say to them: "We will give you core funding but, actually, the incremental funding will be dependent on you delivering against an agreed set of performance benchmarks", and so we now have UNDP, UNICEF, UNHCR, WHO and the World Food Programme on these performance contracts […] we have just done our first assessment of them and about half of them got their performance tranche and about half of them did not. So it was quite clear that performance was consequent. We have now applied that also to the Global Fund, so we are trying to be quite tough in raising the bar on performance.[200]

115. DFID has also been a strong advocate of the "One UN" approach under which UN support in a given country is delivered through a single, coordinated UN programme.[201] DFID reported that, as of July 2009, 12 countries had been approved to receive aid through "Delivering as One"; six further countries had met the criteria, and 14 were making "good progress" towards it, with a further 21 potentially eligible.[202] DFID has committed £40 million over two years for countries adopting the approach and other countries that wished to. The approach was piloted in eight countries in 2007, with six more added since. DFID's assessment is that it "is delivering increased UN effectiveness and efficiency savings."[203] Evaluations of the One UN pilots were expected to begin in autumn 2009.[204]

116. The UN has a unique place in development and is capable of delivering services where other multilateral and bilateral bodies sometimes cannot. However, there is a clear and urgent need for significant reform to streamline delivery and reduce duplication amongst UN agencies. We support DFID's approach of tying a proportion of UN funding to performance measures. DFID is also a strong supporter of the "Delivering as One" approach and has assessed that it is making the UN more effective. We recommend that, in response to this Report, DFID provide us with more evidence for this assessment. We would also wish to be kept informed of progress with the latest round of evaluations of One UN pilot programmes.

Reforming the governance of international financial institutions (IFIs)

117. As we emphasised in our Aid Under Pressure Report, the substantial increase in funding for the IFIs agreed by the international community in 2009 needs to be accompanied by governance reform to ensure that developing countries are fully involved in decision-making. At the Pittsburgh conference in September 2009, the G20 outlined a timetable for IMF governance reform by January 2011 (rather than 2013 as originally planned) and by the April 2010 Spring Meetings for the World Bank.[205] We explore specific IMF and World Bank reforms below.

118. Witnesses were not impressed by the White Paper's stance on IFI reform. BOND found it "disappointing that the White Paper is not clearer about the type of governance reforms DFID envisions for the IMF and World Bank and the need for parity of voice and vote between developed and developing countries."[206] Results UK also saw "few specific proposals" on reform, and stated that "the circumstances in which funding for a programme would be reduced or withheld should be clearly communicated."[207]

INTERNATIONAL MONETARY FUND (IMF)

119. The Jubilee Debt Campaign and Results UK both highlighted the important role the IMF plays in development, and the need for DFID to work closely with the Treasury on its reform.[208] The White Paper includes a commitment to build on past IMF governance reforms.[209] The 2009 Autumn Meetings accepted that quota reform "is crucial for increasing the legitimacy and effectiveness" of the IMF.[210] It endorsed the G20's call for a "shift in quota share to dynamic emerging market and developing countries of at least five percent from over-represented countries to under-represented countries using the current quota formula as the basis to work from."[211] The voting share of the Fund's poorest members would be "protected".[212] The International Monetary and Financial Committee of the IMF Board of Governors (IMFC) has urged Fund members to "promptly consent" to the quota and voice reforms already agreed in April 2008.[213]

120. The G20 had said that the current quota review should cover "other critical issues", specifically: increases in overall quotas; Executive Board size, composition and effectiveness; and Fund Governors' involvement in strategic oversight. Ministers called on the IMF "to examine the full range of governance reforms" at the Autumn Meetings, and requested a report on the review's progress at the 2010 Spring meetings.[214] Minsters also stated the intention "to adopt an open, merit-based and transparent process for the selection of IMF management at our next meeting." The Autumn Meetings also agreed a review of the IMF's mandate "to encompass the whole range of macroeconomic and financial sector policies that affect global stability", reporting by the 2010 Autumn meetings.[215]

121. The G20's call for an allocation of Special Drawing Rights (SDRs) was met earlier this year, with $280 billion worth of SDRs created. Because allocations were based on economic strength, developed countries received $180 billion of these, and of the $100 billion that went to developing countries, only $21 billion went to low-income countries (LICs). The Government told us that it was "leading the agenda to explore how the increased SDR allocations can be used to make even more finance available to LICs".[216] However, the G20 proposal is for "mechanisms that could allow the mobilisation of existing SDR resources to support the IMF's lending to the poorest countries",[217] which the Bretton Woods Project argues would "transform conditionality-free SDRs into conditionality-laden loans".[218]

122. The White Paper highlighted the "major reforms" to IMF conditionality policy which had taken place in March 2009:

Structural measures are no longer used as binding conditions and may only be used as benchmarks to monitor progress. So now, the IMF no longer bases its programme financing decisions on policies such as countries' approaches to privatisation and capital market liberalisation. The UK government and UK NGOs led the way in calling for this wholesale reform. Its achievement is testimony to a good partnership between the Treasury and DFID.[219]

However, commentators were less positive. The UK Aid Network argued that the IMF still favours "contractionary spending policies" even though this could undermine safety nets.[220] Results UK also noted that:

By allowing for the individual characters of developing economies, and consulting with countries about the most appropriate fiscal policy for them, the IMF can become a more constructive partner for poverty reduction. Although we commend recent progress in reducing structural conditionality in the IMF's programmes as highlighted in the White Paper, much still needs to change. The UK's further funding of the IMF should be made conditional on progress in policy and processes, rather than just on governance reform.[221]

123. We have long argued that the number of conditions imposed by the IMF should be reduced, and that any which remain should be fully consistent with reducing poverty. The March 2009 reforms, moving away from binding structural conditions towards 'benchmarking', are to be welcomed. However, it remains to be seen whether this change of policy will genuinely reduce IMF policy prescription, or whether benchmarking merely becomes conditionality by another name. We recommend that, in response to this Report, DFID set out its views on the impact of all IMF reforms agreed in the last 12 months and its aims for further reform.

WORLD BANK

124. The White Paper outlined a five-point plan for World Bank reform.[222] The UK Aid Network supports the view that increased joint working with the Bank must be accompanied by governance reforms, as well as increased effectiveness and country ownership, but criticised the reform agenda in the White Paper as "not sufficiently progressive". It argues that the White Paper proposals do not "match up to the effectiveness standards set for the UN", and calls for additional funds, including the IDA replenishment in autumn 2010, to be subject to commitment to reform.[223] BOND believes that "scrutiny of the performance of the World Bank needs to be given greater attention, as the White Paper makes UN funding conditional on its performance but fails to do so for the World Bank."[224]

125. The Government's plans for the World Bank include increasing its legitimacy, with "voting reform by April 2010 that would give developing countries more say."[225] The Autumn Meetings "stressed the importance of moving towards equitable voting power [...] over time through [...] a dynamic formula which primarily reflects countries' evolving economic weight and the World Bank's development mission", and endorsed a shift of "at least 3% of voting power for developing and transition countries [...] to the benefit of under-represented countries", on top of the shift of just under 1.5% from the first phase of reforms. The aim is that agreement should be reached by the 2010 Spring Meetings, with a commitment to protect the voting weight of "the smallest poor countries".[226]

126. The Secretary of State stressed that World Bank effectiveness and legitimacy should be linked, highlighting the fact that governance, voice and effectiveness issues were now proceeding together, not separately: "We would hope we could work with others to create the conditions—this is far from guaranteed—where a broader bargain could emerge whereby we could address a number of these issues simultaneously."[227] However, the Government's Response to our Aid Under Pressure Report warned that "reaching agreement by Spring 2010 is an ambitious timetable given the complexity of issues and even the number of stakeholders involved."[228]

127. The White Paper also noted the agreement at the G20 London Summit "that the next Heads of the World Bank and IMF will be selected in an open, transparent and competitive process, regardless of nationality."[229] At Pittsburgh, this was extended to "all international institutions".[230] The Development Committee communiqué from the Autumn Meetings did not make reference to the selection process of the World Bank President.[231] We support the move to open and merit-based appointments to the heads and senior management of all international institutions, but are concerned that this has yet to be formally endorsed by the World Bank. We call on the Government to work towards adoption of this commitment at the 2010 Spring Meetings.

128. The White Paper noted that the Government had sought reduced World Bank conditionality over a number of years, and that the average number of loan conditions had:

[…] fallen from 32 in 1999 to 12 in 2007 […] More importantly, the Bank has stopped imposing conditions on sensitive policies such as privatisation and liberalisation if country ownership is uncertain or the political environment is fragile.[232]

The White Paper also called for a World Bank that was "more flexible and swift" in delivery, with the aim of reducing the average time to process most loans from 18 months to 12.[233] This might involve "more budget support, as this is fast-disbursing and helps Governments to deliver on their current spending plans."[234] The Secretary of State reiterated in a speech on 10 February that the World Bank needed to become "quick and nimble enough to respond to an unpredictable world". He said that his vision for it included a willingness to tackle the "toughest development challenges" and to concentrate its efforts on the poorest countries.[235]

129. While it is regrettable that it took an economic crisis to force the pace of change, the additional funding for the international financial institutions (IFIs) agreed at the 2009 London G20 Summit appears to have been accompanied by an increased sense of urgency in relation to reform. However, the shifts in economic power that led to the G20's new prominence have yet to be reflected in the governance structures of the IFIs and the pace of progress remains too slow. We support the White Paper's emphasis on linking future funding of the World Bank to reform. This should be given particular focus in the negotiations for the forthcoming International Development Association replenishment, where the UK's leverage will be at its greatest. We believe that the UK, as one of the major funders of the IFIs and the regional development banks, should be more forceful in pressing for an increased focus on poverty reduction and a greater voice in governance for developing countries. We invite DFID to provide us with more information on its plans to make its funding for these bodies explicitly conditional on reform, in the same way as applies to UN agencies.

177 DFID, Annual Report and Resource Accounts 2008-09, HC 867, Volume I, para 3.10 Back

178 DFID, Eliminating World Poverty: Building our Common Future, July 2009, Cm 7656, pp 103 and 108 Back

179 Statistics on International Development (SIDS) 2008-09 & 2007-08, table 3 (cf 49% in DFID Annual Report and Resource Accounts 2008-09, Volume 2, p 70) Back

180 DFID, Eliminating World Poverty: Building our Common Future, July 2009, Cm 7656, para 3.10 and SIDS 2008-09, table 3 Back

181 SIDS 2008-09 table 3 Back

182 SIDS 2008-09 table 3 Back

183 NAO, DFID: Progress in improving performance management, 2009, pp 28-29 Back

184 Qs 23-24 Back

185 2009 Annual Performance Report, p 34 Back

186 EU Council Conclusions on Policy Coherence for Development, 17 November 2009 Back

187 EU Council Conclusions on Policy Coherence for Development, 17 November 2009, para 10 Back

188 DFID, Eliminating World Poverty: Building our Common Future, p 111 Back