Predictability
Definition
Predictability refers to the predictable delivery of aid to partner countries. There is often a gap between what donors commit to give, and what they actually disburse. This may be due to partner countries failing to meet conditions that donors want them to meet, for example on macroeconomic policy or governance. It may also be due to administrative bottlenecks and changes in donor priorities. In other cases donors may not produce firm multi year commitments. The net result is that country partners do not have a predictable flow of aid funds.
Why is it important?
- Many developing countries are heavily dependent upon external aid that is provided without long term assurances and unreliably disbursed even in the short term.
- Predictable aid flows make it easier for partner governments to make more strategic use of funds, for example by integrating them into long term public expenditure plans. This enables sustained improvements, for example in health or education.
- In contrast, unpredictable and volatile aid makes it difficult for partner governments to plan ahead or manage their economy in a way that enables poverty reduction and growth. For example, they cannot use aid to cover the cost of public sector salaries if they cannot guarantee when and for how long they will receive those funds
Facts and figures
Bulir & Hamann (2001) have assessed the volatility of aid compared with domestic revenues, and found that on certain measures (in US$ as % of GDP), aid is four times as volatile as domestic revenues; and for highly aid dependent countries, aid is 7 times more volatile than domestic revenue. In 2005 they found that aid volatility may be getting worse over time.
DFID/UK position
- DFID is investigating the volatility of aid flows across different aid instruments, donors, recipients and periods.
- The UK has announced commitments to improve the predictability of aid:
- DFID will improve long term predictability of aid flows by drawing up 10 year arrangements with partner governments. DFID has a 10 year memorandum of understanding with Ethiopia and Sierra Leone. DFID is planning to negotiate similar agreements with a number of other countries, including Tanzania, Afghanistan, Rwanda and Vietnam.
- Where partner governments poverty reduction strategies (PRSs) are working well, DFID is offering rolling multi-year poverty reduction budget support (PRBS) arrangements.
- DFID will improve the way it disburses PRBS so that changes in aid disbursements will only occur if fundamental conditions on poverty reduction, human rights, and public financial management are breached.
- DFID will inform recipients of its aid disbursement plans at a time and in the form needed for finalisation of their budget. DFID aims to disburse PRBS in the first six months of the partner's financial year.
- DFID will report publicly on PBRS disbursement for the year and on commitments for three years ahead.
International perspectives
At the
Development
Assistance Committee (DAC) High Level Forum in Paris March 2005, donors
committed to: provide more predictable and multi year commitments on aid flows
to committed partners and disburse aid in a timetabled and predictable manner.
They also agreed to a target of 75% of all aid released on schedule.
Issues to Address
- Not all donors can make firm, multi-year pledges, as their budgets are often restricted by annual legislative approval of budgets.
- Donors may also be reluctant to make long-term commitments due to changing future priorities
- Donors have minimum standards, related to political, humanitarian and governance issues. If breached, these may trigger aid suspension, despite intentions to give predictable aid
- Partners may not implement what they agree with donors, eg if they come under domestic pressure to take other steps, or if strategies need adjusting for other reasons.
- Donors are not always transparent with regard to financial commitments. Agreements with partner countries may leave room for interpretation leading to lack of clarity, misunderstandings and a break-down in aid flows
- Fluctuations in aid are inevitable, but will have a less damaging impact
on partner countries if they are given time to plan for them and to
compensate for loss of aid through other resources. Aid-dependent countries
that have few alternative sources of resources are particularly vulnerable
Further information
Last updated: 2 February 2006
