Donors have a commitment problem - and they should pay to fix it

22 Feb 18

It’s a paradox, but aid can undermine state building efforts in recipient countries. Maia King considers how this conundrum can be solved.

The evidence is strong and growing of the many ways that aid can undermine institutions in developing countries. Donors need to solve this longstanding issue more urgently than ever, as they expect to send more aid to tackle poverty in fragile states, where the damaging consequences of poor aid practices on statebuilding are most acute.

A fascinating new book on this topic, Aid Paradoxes in Afghanistan by Nemat Bizhan, was presented last week at ODI. The presentation combined a detailed investigation of state capacity in Afghanistan with the depressingly familiar story of the failures and unintended consequences of aid in a fragile state. Bizhan termed these ‘aid paradoxes’ – donors are delivering some public services while at the same time undermining the statebuilding process. For example, despite the clear need – and international commitments – for donors to share information, there is a shocking lack of transparency on their spending. In Afghanistan, this contributes to a ‘misalignment’ - a lack of coordination - between an enormous parallel public sector and public services funded from the government budget.

While clearly the solution to these kind of aid paradoxes in fragile states involves donors respecting a recipient government’s authority to lead aid management, to move forward we need to dispense with two fictions.

First, it is a fiction that donors can pass the buck to recipient governments for the costs and responsibility for compliance with aid management rules, when donors themselves have created the problem. There is a clear irony in the fact that donors pay no tax and yet place a significant burden on stretched state capacity – for example because of the time taken to chase donors to provide information on their aid spending.

Secondly, it is a fiction that an international sanction regime consisting only of naming and shaming non-compliant donors can have a real impact on field office incentives.

Donors need to get tough on themselves.

There are two possibilities here. One is that donors really don't care about their indirect effects on statebuilding and it's all talk. The other is that they do, but are unable to change their behaviour.

If the latter is true, this is a classic commitment problem - the same problem you face if you want to get up early and go to the gym tomorrow, but when the alarm clock rings you just reach over and press snooze. What is required is a commitment device that can change your incentives and make your promises credible - like an alarm clock on wheels.

What would be needed to make donor commitments credible - and useful for development?

Here are three criteria for non-compliance sanctions: they must be salient, credible and based on rules that could have a meaningful impact. In particular:

1. salient 'hard' sanctions are those that actually matter to donor field offices - for example related to disbursement or staff career advancement - rather than simply ‘soft’ reputational sanctions which have failed;

2. credible sanctions require that whoever is monitoring donor compliance and enforcing sanctions must also have the incentives and capacity to do so; and

3. sanctions should be based on aid practice rules that are worth complying with in the sense that they either support state capacity or do not hinder it.

The first and third points could be developed in consultation between donors and government in each country.

For point three, these country-specific ‘aid protocols’ may already exist, including various practices that donors need help committing to. For example, restrictions on poaching local staff or the timing/number of donor visits, and commitments to provide aid information using the government's fiscal year and classification system - so as to support government decision-making and reduce misalignment.

The second point - on credible sanctions - is the tricky one. It could be seen as a technical issue, and simply a matter of ‘building monitoring capacity’ in a government’s aid management unit. But it is also political because government officials do not have much recourse against donors who refuse to comply with their requests. And there are costs from using scarce state capacity for such activities, especially in the face of donor tax exemptions.

In fact, one possibility that has been mooted is to use tax as a sanction: donors who do not comply with the rules would find their tax exemptions suspended. This would probably bite as an incentive, and could be self-financing. It would also have the interesting consequence of putting aid management on a legal footing, since tax laws would have to be passed to implement it. And government tax collection from donors would have to be credible for it to work, raising some political and diplomatic issues - as well as technical and capacity ones.

Another idea worth piloting is collective self-regulation by donors. Donors could nominate one of their own in each country as the ‘enforcer’ of the new aid protocol.

The donor enforcer would be responsible for monitoring donor compliance and verifying that necessary sanctions had occurred, as well as shouldering the cost of these enforcement activities. To avoid a conflict of interest, the donor enforcer would have to recuse themselves from service delivery, shifting instead to this statebuilding focus. Their impact would arguably be significant - in helping the donor community to deliver on their promises.

  • Maia King
    Maia King

    Maia King is a researcher at the Blavatnik School of Government, University of Oxford. She is also a former ODI fellow and PFM consultant. She tweets @_Maia_King

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