On Wednesday July 20, the Center for Sustainable Development at the Brookings Institution convened a closed-door roundtable to discuss aid effectiveness, proliferation, and fragmentation in light of the newly published World Bank report: Understanding Trends in Proliferation and Fragmentation for Aid Effectiveness During Crises. Among those present at the discussion, World Bank Vice President for Development Finance, Aki Nishio, presented key findings of the report, followed by a panel and a discussion, moderated by Senior Fellow Homi Kharas. Participants of this roundtable came from Brookings, the World Bank, various nonprofit organizations, and academia.
Over the last two decades, the increase in Official Financial Flows (OFF) from developed countries to developing countries has been accompanied by an increase in donors and donor agencies. The number of donor agencies nearly tripled from 194 in the period 2000-2004 to 502 in the period 2015-2019. This proliferation is felt by recipient countries, many of whom now have more than 60 donor entities to manage. Additionally, a greater share (three out of four) of OFF funded projects are being implemented by entities other than the recipient governments, such as the donor government, private sector institutions, multilateral organizations, and others. Meanwhile, the size of individual donations has decreased, with the average size of Official Development Assistance grants being roughly cut in half from 2000 to 2019.
Collectively, these trends raise concerns around aid effectiveness and transaction costs for recipient countries. A panelist confirmed the greater workloads and difficulties that may result from relying on a multitude of donors and expressed the challenge of obtaining funding for broad budget support, as opposed to earmarked project support. Donors increasingly want to fund projects where they can “stake their flag” and receive credit, leaving fewer funds to the discretion of recipient countries on how they will be used. This roundtable also touched upon the potential consequences of fragmented health aid, for example, during public health crises when liquidity is necessary. The discussants deliberated about the use of cash transfers for social protection in crises and posed various questions surrounding the ideal aid infrastructure.
10 years after the last global forum in Busan, this roundtable echos the World Bank report and is a step toward bringing the issues of aid effectiveness, proliferation, and fragmentation back on the international agenda. The participants acknowledged that pooled funding has been a solution to these issues, but adoption has been low. The participants also observed that above trends have not been as prominent for multilateral aid channels as bilateral ones, leading participants to encourage greater use of channels such as the International Development Association (IDA). There was an acknowledgement by participants that a diversity of donors has certain benefits, particularly for funding innovation, and that these trends may mask the diversity of country outcomes. The participants discussed the possibility of how country case studies can be used to better understand the impact of aid proliferation and fragmentation on recipient countries.