DFID in 209-10 and the Resource Accounts 2009-10

Written evidence submitted by ActionAid

DFID's approach to assessing the effectiveness of aid and the role of DFID's new aid watchdog

1. ActionAid welcomes this inquiry into DFID’s approach to assessing the effectiveness of UK aid. ActionAid believes that aid is effective only when it is truly available for poverty reduction and when it supports countries to develop and implement aid exit strategies, which reduce aid dependency over the long term.

2. With only five years to press towards achievement of the Millennium Development Goals (MGDs), now is a critical time to examine DFID’s approach to assessing its aid effectiveness, and identify priorities for the future. We welcome the Coalition Government’s focus on this area. Through MDG8, donor countries committed to increase aid volumes, improve aid effectiveness, and provide debt relief. These targets recognised that without more and better aid delivered for the primary purpose of poverty reduction, poor countries will not make the progress necessary to achieve the MDGs.

3. The 2010 OECD DAC peer review of UK development assistance praised as DFID a model for other donors in its efforts to reduce poverty and delivering high quality aid. [1] The UK must continue to provide international leadership towards the South Korea High Level Forum (HLF) on Aid Effectiveness planned for late 2011. This HLF will be a key opportunity for the UK and other donors to establish a renewed focus on results, transparency and ensuring aid represents value for money for poor women and men.

4. ActionAid’s experience is that efforts to improve the impact of UK aid have become business as usual in some contexts which is very welcome, but that a commitment to aid effectiveness must remain an organisational priority if concrete poverty reduction objectives are to be realised which allow southern governments to reduce their aid dependency in the future, and if the UK is to retain its international leadership status in this area.

Transparency Critical to Improved Aid Effectiveness

5. ActionAid has long campaigned for citizens in poor countries to have information about aid provided in their name. We welcomed the Government’s announcement of an Aid Transparency Guarantee and that an independent aid watchdog will be established. We also recognise the UK’s continued leadership in the International Aid Transparency Initiative. These announcements must build on and complement both each other and the existing mechanisms designed to support improved aid effectiveness and impact through improving transparency. This will hopefully establish a new standard of openness and encourage scrutiny by citizens in countries receiving UK aid, as well as assuring UK taxpayers that aid is reaching the poorest.

6. For example, ActionAid Cambodia and the Cambodian NGO Forum on aid bought local NGOs, INGOs, trades unions, community members and Buddhist organisations face to face with international donors to scrutinise donor behaviour and to engage with the Cambodian government on its own use of aid. The NGO Forum remains active in discussions with government and donors on the quality and use of aid, which has supported progress in improving aid quality.

7. Leading donors - including DFID - signed the Paris Declaration on Aid Effectiveness in 2005, committing to improve the quality of their aid in line with five principles: country ownership, mutual accountability, donor harmonisation, alignment with national priorities, and managing for results. They agreed, amongst other things, targets for the amount of aid reported in recipient government budgets and to improve the timeliness of disbursements against budgeted expenditure. The UK is the top performing G8 donor in terms of levels of aid reported on budget, and has made real strides in improving the predictability of its aid against forward budgets. Subsequently, at the Third High Level Forum on Aid Effectiveness in Accra, Ghana, in 2008, the UK committed to provide rolling three-to-five-year forward expenditure and/or implementation plans for all UK aid. DFID has yet to publish this information on forward plans.

Aid Transparency in the International Development Act (2006)

8. DFID support to the International Aid Transparency Initiative has been central to a greater donor commitment to transparency, and DFID’s project information database has started to demonstrate ways in which donors can make information about their aid more accessible, particularly to their own citizens.

9. The International Development (Reporting and Transparency) Act (2006) requires DFID’s Minister to report annually on specific aid effectiveness practices. This annual report is another important contribution to improving transparency and allowing public and parliamentary scrutiny of DFID progress, however there are opportunities to press for improvements in the quality of information DFID provides in line with this obligation, and through the proposed Aid Watchdog.

10. The 2006 Act requires DFID to report on progress in specifying future allocations of aid and promoting better management of aid. In its 2009-10 report DFID provided information on the predictability of its poverty reduction budget support (see below for further discussion of DFID budget support) allocations to 14 countries. While ActionAid welcomes this information, DFID’s accounts show that PRBS accounts for only 11% of DFID’s total spending which means that information on the predictability the vast majority of DFID spending has not been provided.

11. ActionAid’s experience is also that DFID has not consistently provided accurate and timely forward spending plans in southern countries. Lack of information about future aid volumes makes DFID aid unpredictable which reduces its value to southern governments by undermining long term planning and creating financial uncertainty. [2] It also prevents citizens from tracking budgeted against actual spending. ActionAid’s local partners repeatedly tell us that a lack of information remains a major challenge to holding governments - and donors - to account for aid spending and results.

Questions

· When will DFID begin publishing forward spending plans for all UK aid, in line with its Paris and Accra commitments to report spending on-budget and provide rolling three- to five-year forward expenditure and/or implementation plans?

· What requirements are there for DFID to consult with national governments and citizens in southern countries for the development of national forward spending plans?

· How will the Aid Transparency Guarantee ensure that all planned and actual UK Aid spending information is publicly available to citizens in an accessible, comprehensive and timely format?

An Aid Watchdog for all ODA and with southern representation

12. ActionAid welcomes the new independent Aid Watchdog proposed by the government. It will be important that the Watchdog is mandated to scrutinise all of the Government’s official development assistance, not just ODA administered by DFID. It is crucially important that all ODA spending government departments are held to the same standards as DFID. For this reason, ActionAid also believes that the findings and recommendations of the planned Watchdog must be acted on across government departments.

13. The composition and workplan of the Watchdog will also be critical in ensuring that the Watchdog is properly focussed on ensuring that ODA is delivering results and value for money in recipient countries Ensuring that the Watchdog's commissioners and workplan are informed by, and include representatives from, southern countries will ensure that the views and experiences of poor people and recipient country governments are being accounted for.

Questions

· Will the new Aid Watchdog be mandated to scrutinise all ODA spending; not just aid managed by DFID?

· Will the Watchdog membership include southern representation so that the views and experiences of poor people and aid recipient governments are taken into account?

· What measures will be put in place requiring government departments responsible for ODA budgets to act in response to the Watchdog’s findings and recommendations?

More Progress needed on Technical Assistance

14. The International Development Act also requires that DFID’s aid remain untied and ActionAid welcomes the Coalition Programme undertaking that UK Aid will continue to be untied. A 2009 OECD DAC report shows clearly that only the UK, Luxembourg and Norway have formally fully untied their aid, while highlighting that tying aid reduces value for money by unnecessarily increasing the cost of goods, services and works by an average of 15-30%. [3]

15. ActionAid continues to call for UK progress on the de facto untying of all UK official development assistance, including technical assistance. The same OECD DAC report showed meant that over 80% of consultancy contracts awarded still go to UK firms. [4] A planned 2007 review of DFID’s use of technical assistance has never been implemented, meaning that DFID has never investigated whether its use of technical assistance represents value for money spending or is effective in southern countries.

Question

· Will DFID review its use of technical assistance to ensure that it represents value for money, and that its technical assistance is demand driven and country-led?

Effective Aid Supports National Development Priorities

16. In preparation for the next South Korea HLF, DFID will need to look again at the effectiveness of various aid modalities, including budget support. Budget support is another area where the UK has been a global leader, recognising that aid provided directly to governments committed to poverty reduction is the most effective - and efficient - way of supporting national development strategies at scale over the long term. ActionAid favours forms of development finance which enable countries to drive their own development strategies and priorities, and therefore favours budget support where countries have a commitment to poverty reduction and to transparent public financial management. This can support long term development albeit in a way which may require more effort around transparency and attribution in the short term.

17. Donors published their first independent evaluation of budget support in 2006. This found that budget support can be an effective way of supporting national poverty reduction strategies and building developing country government capacity – in Burkina Faso, Rwanda, Mozambique, Uganda and Vietnam budget support was associated with more resources being made available for service delivery, a reorientation of public expenditure in line with government’s policy priorities and better predictability of funding. It was also found to have positive impacts on public financial management. In addition, it found that budget support had a positive impact in terms of the overall quality of donor aid provided and on the efficiency of resource use by developing governments – this is in part because recipient governments can follow their own standard procedures rather than a large number of differing donor ones.

18. At the same time the authors cautioned that donors shouldn’t rush to adopt budget support in all contexts, identifying political risks associated with it. [5] Critics have focused on these political risks, despite budget support remaining less than five percent of global ODA. On the basis of our own experience in countries receiving DFID budget support ActionAid shares some of these concerns. The criteria, for example, upon which budget support (and other aid) will be disbursed or withdrawn from particular countries, should be clear and transparent to recipient governments, parliaments and civil society.

19. It will also be important for DFID to put in place mechanisms which provide for information from these accountability and monitoring activities to influence DFID budget support allocations, and clarify when aid will be changed from budget support to other modalities. Some of the strongest criticisms of DFID’s use of budget support have concentrated on its continued use despite violations of agreements governing budget support arrangements (Memorandum of Understanding) signed with recipient governments, for example in cases of human rights violations or misuse of funds.

20. ActionAid’s own research (2006) has shown that budget support has supported national poverty reduction strategy dialogue between governments and civil society, but that DFID contact with civil society has decreased in favour of increased policy negotiation with national governments. While in part designed to reinforce domestic accountability relationships, these changes were particularly challenging for local NGOs who were not able to fund their valuable service delivery activities and often lacked the skills to engage in policy dialogue and monitoring at local and national level. Five years on, nascent budget tracking and accountability forums are emerging at local and national levels in southern countries but weak accountability mechanisms and capacity mean that these efforts still need support.

21. ActionAid therefore welcomes the government commitment that an amount equal to five per cent of the value of budget support will support civil society, media and non-executive budget accountability and monitoring in recipient countries. Our own experience is that supporting poor and vulnerable communities with increased economic literacy and budget tracking skills is a powerful way of enabling them to hold their governments and donors to account for the use of aid money. [6] It will be important for the intended recipients of these funds to have a say in how they are designed and administered.

Questions

· What steps will DFID take to establish feedback loops so that information that may affect budget support payments can be gathered and acted upon?

· What plans has to DFID publically consult on planned guidance for budget support accountability funding so that organisations for which the funds are intended can provide their views on design and administration?