More effective aid

The post-Monterrey agenda
Development Co-operation Directorate (DCD)
Page 25 

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There is wide acceptance now that aid from wealthy countries is important for development. More assistance is needed, but that is not all.

Aid works. It helps poor people to raise their incomes and to live longer and healthier, as well as more secure and productive, lives. Aid has helped to eradicate smallpox, is on the way to helping to eradicate polio, and has made major inroads into reducing river blindness. Even in sub-Saharan Africa, with the world’s worst development indicators, aid has played a role in improving life expectancy – up from 42 years in the 1960s to 49 in the 1990s, and in doubling the proportion of children in primary school (although 30% of girls and 20% of boys are still out of school). Quite simply, aid is an effective catalyst for economic growth and social development.

But more aid is needed. Estimates by the World Bank and others suggest that achieving the Millennium Development Goals (an overriding one of which is to halve the incidence of extreme poverty by 2015) will require a doubling in the volume of official development assistance (ODA) in the medium term. The Monterrey Consensus – from the March 2002 International Conference on Financing for Development – is a promising first step. It launches a new partnership between developed and developing countries, based on shared responsibility: developing countries recognise that they have primary responsibility for their own economic and social development and developed countries commit to international financial and technical co-operation for development. The commitments by donors at Monterrey fell well short of doubling ODA, but they would nonetheless reverse the 1990s decline. In fact the commitments, if fulfilled, could raise the ratio of ODA to national income from its 2000 level of 0.22% to 0.24% by 2006 – a volume increase of some US$13 billion on its 2000 level of US$54 billion.

Aid must also be used more effectively. There is need for a significant shift in aid towards low-income countries, although donors should still target some assistance towards less poor, more populous countries with large numbers of poor people. Sound policies, good governance and institutional quality are important factors, but cutting poverty is the foremost objective. And countries that perform well will receive more aid.

In launching the Millennium Challenge Account, with a 50% increase in US aid, President Bush said it will be “devoted to projects in nations that govern justly, invest in their people and encourage economic freedom.” But the case of Afghanistan is a powerful reminder also of the necessity for continued engagement in fragile countries – to help them address their underlying governance problems and, where feasible, provide basic social services.

Aid effectiveness has to be measured, of course. The Millennium Development Goals from the UN Millennium Summit of 2000 provide a framework for measuring progress on poverty reduction, education, health and the environment, as well as aid volume, market access and debt relief. This reflects progress on policy coherence for development in donor countries – which the members of the Development Assistance Committee and other OECD members monitor through peer reviews. Still, more is needed and the DAC is working with others to identify annual measures of results that can show effective use of both aid and national resources and help with their future allocation. Numbers are not the only measure and qualitative indicators will be used to take account of governance, the rule of law and respect for human rights. And through the PARIS21 initiative (see, the DAC is actively supporting efforts to build the statistical capacity required to monitor progress.

Finally, the DAC is offering guidance to promote simplification and harmonisation of donor procedures and so reduce the burden on the capacities of partner countries to manage aid and to lower the transaction costs involved.

Thanks to these combined efforts we have an unprecedented opportunity to realise the Millennium Development Goals and cut world poverty, as well as promoting sustainable development. We have no choice but to take it.

©OECD Observer No 231/232, May 2002

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