How to spend it.

Author:Collier, Paul
Position:Independent Public Service Agency
 
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19 June 2012

A donor dilemma: aid effectiveness in fragile states.

Donors are often faced with the dilemma that those countries most in need of aid are often those least likely to spend it effectively. Attempts to overcome this dilemma by using capacity-building and policy conditionality have proved ineffective and a new approach is required. In a recent UNU-WIDER working paper 'How to Spend it' Paul Collier first addresses the donor dilemma and then goes on to suggest a menu of new organizational designs for ensuring that recipient countries use aid efficiently.

This dilemma can be characterized as an instance of the Tingenberg rule which states that for policy objectives to be attainable there must be at least as many policy instruments as objectives. Given this rule if the only policy instrument donors have is volume of aid then the dual objectives of responding to need and effective use of donor money cannot both be met. Attempts to overcome this dilemma by using capacity-building and policy conditionality have proved ineffective and a new approach is required.

In a recent UNU-WIDER working paper 'How to Spend it' Paul Collier first addresses the donor dilemma and then goes on to suggest a menu of new organizational designs for ensuring that recipient countries spend aid efficiently.

The donor dilemma

For there to be a reasonable prospect of aid being well spent by recipient countries two conditions need to be met. First, the intentions of government need to be aligned with the interests of citizens. Second, the government needs to control an effective system of public spending. The donor dilemma is that those countries in greatest need are often those where one or both of these conditions are not met. Consequently the objective of addressing need has to be supplemented by that of achieving effectiveness. Donors cannot attain both objectives with the single instrument of the volume of aid and therefore a second instrument is necessary.

The potential for a second instrument to deal with governments whose intentions are not in line with the interest of its citizens is limited as improvement in overall governance is largely an internal struggle and there are limits both to what donors can do and to what they should aspire to do in this area. The scope for an effective second donor instrument is best confined to cases where the first condition is already met but where the second is not. In these instances what is required is specific...

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