This training material is the property of the International Monetary Fund (IMF) and is intended for use in IMF Fiscal Affairs Department (FAD) courses.Any reuse requires the permission of the IMF and FAD.

Module

Management and Coordination of Donor Funding

Public Financial Management (PFMx)13

Defining Official Development Assistance (ODA)

Economic development

Welfare of recipient countries

Official Development Assistance is …… resource flows from donors for:

Types of ODA

Bilateral

Multilateral

For example:

For example:

Examples of ODA Resource Flow

ODA resource

flows

In-kind

Grants Concessional Loans

DebtForgiveness

Foundations of Modern ODA

ODA and Fiscal Policy Objectives

Dislocation of the economy

Lack of confidence in the local currency

War effort and war maintenance

The Context of ODA Today

Magnitude of Global Aid-1

Source:OECD.

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

020406080100120140160180

1960 1966 1972 1978 1984 1990 1996 2002 2008 2014

ODA

asa

percentageofGNI

Constant2014US

Dbillion

TotalODA(leftscale)

ODA/GNI(rightscale)

Netofficialdevelopmentassistance,1960-2015

Magnitude of Global Aid-2

NetODA,constant2015USDbillions

Source:OECD.

0

20

40

60

80

100

120

140

160

2000 2002 2004 2006 2008 2010 2012 2014 2016

OthernetODAHumanitarianAidIn-donorrefugeecosts

Magnitude of Global Aid

Source:OECD

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

020406080100120140160180

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

ODA

asa

percentageofGNI

Constant2014US

Dbillion

TotalODA(leftscale) ODA/GNI(rightscale)

Netofficialdevelopmentassistance,1960-2015

ODA in Developing Countries

Source:OECDandWorldBank

ODAinLowandMiddle-incomeeconomies:AsapercentageofGDP(incurrentUS$)

0

0.5

1

1.5

2

0

5

10

15

20

1980 1985 1990 1995 2000 2005 2010 2015

LIC MIC

ODA in Low Income Countries (LICs)

Source:OECDandWorldBank.

0

40

80

120

160

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Liberia:ODAasapercentageofGDP(incurrentUS$)

Highest Aid Beneficiaries

0

40

80

120

160

Tuvalu

Libe

ria

Kirib

ati

MarshallIsla

nds

Nau

ru

CentralA

frican

Rep

ublic

Microne

sia,Fed

.Sts.

Vanu

atu

SierraLeo

ne

Afghan

istan

Somalia

SouthSuda

n

Solomon

Island

s

Malaw

i

Tonga

SaoTomean

dPrincipe

WestB

ankan

dGa

za

Timor-Leste

Rwan

da

Mozam

biqu

e

Top20AidBeneficiaries- 2015ODAasapercentageofGDP(currentUS$)

Source:OECDandWorldBank.

United States Agency for International Development

DistributionofAidbyRegionandIncome,2016

5% 3%

16%

20%49%

7%

EastAsiaandOceania

EuropeandEurasia

MiddleEastandNorthAfrica

SouthandCentralAsia

Sub-SaharanAfrica

WesternHemisphere

0.06%

48%

38%

13%

HighIncomeCountry

LowIncomeCountry

LowerMiddleIncomeCountry

UpperMiddleIncomeCountry

Source:USAID.

ODA Delivery Modalities

Budget Support Project-basedSupport

Capacity Development

Budget Support

BudgetSupport

Directtransfertoapartnercountry’sbudget.

ManagedusingnationalPFMsystems.

General,orSectoral

Noearmarking

Governedbyframeworkagreements

Related‘milestones’

Project-based Support

Project-basedSupport

Forspecificdevelopmentprojects

Sometimesdisbursedthroughthetreasury–withwell-functioningTSA

Mostlydisbursedthroughprojectaccounts

Arguments FOR and AGAINST Different Modalities of ODA

BudgetSupport Project-basedSupport

Promotesimprovementsincountrysystems

Fostersdomesticaccountability

Morepredictable

Easytrackingofoutcomes

Highriskofmisusewhenbudgetaryinstitutionsareweak

Doesnotallowtoredirectaidtoemergingpriorityneeds

Slowdisbursements

Ofteninvolvesparalleladministrativestructures

Arguments FOR and AGAINST Different Modalities of ODA

BudgetSupport Project-basedSupport

Promotesimprovementsincountrysystems

Fostersdomesticaccountability

Morepredictable

Easytrackingofoutcomes

Highriskofmisusewhenbudgetaryinstitutionsareweak

Doesnotallowtoredirectaidtoemergingpriorityneeds

Slowdisbursements

Ofteninvolvesparalleladministrativestructures

Traditional Aid Modalities and PFM Systems

Interactions:

BudgetSupport Project-basedSupport

Canbemoreeffectiveinlowcapacityenvironments

Asecureflowofresourcesinfragilestates

Ifpoorgovernance:potentialabuseofdonorfunds

Ifnostrategy:uncertaintyaboutresults

Traditional Aid Modalities and PFM Systems

Interactions:

BudgetSupport Project-basedSupport

Canbemoreeffectiveinlowcapacityenvironments

Asecureflowofresourcesinfragilestates

Ifpoorgovernance:potentialabuseofdonorfunds

Ifnostrategy:uncertaintyaboutresults

PFM assessment tools

ODA and PFM systems

ODAvsPEFAScores

Source:OECDandWorldBank

0.00200.00400.00600.00800.00

1000.001200.001400.001600.001800.002000.00

1.33 1.78 2.17 2.66

ODA

,USD

millions

AveragePEFAscores

Donor Funding and the Budget Cycle

Donor Funding and PFM Legislation

Approval of loan and grant agreements

Requirements for data collection on aid resources

Arrangements for the management of pooled funds

Legal Framework

Donor Funding and Fiscal Framework

Capture in fiscal forecasts, and debt sustainability

Aid volatility is challenging

Budget to include debt servicing

Donor Funding and Budget Preparation

Integration into annual and multi-year budgets

Avoid “Dual budgeting”

Challenges with forecasting aid flows

Donor Funding and Budget Execution

Flow through TSA and government’s systems

Robust IFMIS can help

Need strong procurement systems

Donor Funding and Accounting and Reporting

Record in government’s accounting system

Adequate expenditure classification

Link government systems with aid implementation units’

Donor Funding and Control and Audit

Audit by country’s SAI

Many donors have to conduct separate audits

Principles of Aid Effectiveness

Principles of Aid Effectiveness

Principles of Aid Effectiveness

Principles of Aid Effectiveness

Principles of Aid Effectiveness

Principles of Aid Effectiveness

Principles of Aid Effectiveness

Recipient Countries’ PFM Performance

Quality of PFM systems

Marginal increase in use of PFM systems

Unpredictable aid flows

Inability to link strategic priorities with budgeting process

Diverging accountability objectives

Aid Coordination

Aid complements efforts by recipient country

Coordination between recipient and donor

Coordination among donors

Recipients take the lead

Focus on donors’ expertise

Forms of Aid Coordination Modalities

Donorside Recipientside

Delegatealeaddonor

Co-financingarrangements

Poolingofresources

Donorcoordinationunits

Externalfinancemanagementunits

Examples of Aid Coordination Modalities

Basic: aid coordination committee

Advanced: joint country assistance strategy

No single mechanism for every situation

Country context and donors requirements important

Address divergences that may arise

Benefits of Effective Aid Coordination

Aid coordination

Prioritization and sequencing

of reforms

Reaches intended beneficiaries

Reduced transaction cost

Allocation among donors

Aid and Revenue Mobilization

Donor Funding

Ineffective spending

Dependence

Reduced incentives for

DRM

Some Improvements in Aid Effectiveness

Workingpracticesevolving4.

BetterPFMsystems3.

IncreasedBudgetSupport2.

ODAchanneledthroughcountrysystems1.

Aideffectiveness

Emerging Issues

Medium-term fiscal and budget frameworks

Computerization of financial management systems

Accounting and reporting reforms

Diagnostic tools to inform design of PFM strategies

Increase in technical assistance

Results frameworks for programmatic approaches

Donor Funding and PFM

Modalities

Aid effectiveness

Aid coordination

ODA and PFM are complementary

This training material is the property of the International Monetary Fund (IMF) and is intended for use in IMF Fiscal Affairs Department (FAD) courses.Any reuse requires the permission of the IMF and FAD.

Module

Fragile States – Sequencing the reforms

Public Financial Management (PFMx)13

Defining Fragile States

Experience of conflict in most recent three-year period

Countries with weak institutional capacity according to World Bank Country Policy and Institutional Assessment

Fragile States according to IMF definition

Characteristics of Fragile States

A diverse group

1.

2.

3.

4.

Low economic development

Macroeconomic imbalances

Lack of public service delivery

Affected by conflict

Common features

Challenges in Fragile States

FragileStates

High levels of budget support

Weak fiscal institutions

Financial mismanagement

Aid coordination

Low public expenditure level

Pace of reforms in Fragile States

Basic PFM Systems

Wait

Modernize Fiscal Institutions

Advanced Reforms

Conflict or Disaster

Post-Conflict

Vulnerable

Not fragile

PFM reforms in Fragile States

Wait

Advanced Reforms

Conflict or Disaster

Post-Conflict

Vulnerable

Not fragile

• Annual Budget• Payment Systems and

Controls • Consolidation of Cash

• Medium-term budgeting• Internal Controls • Accounting standards and reporting• Cash and Debt Management