should move from entitle- ment to performance-based aid

By Niels Keijzer & Timo Mahn, German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)

of 20 January 2014 Germany should move from entitlement to performance-based aid

Bonn, 20 January 2014. Given the negative impact of On that basis, it would be easier to convince other fiscal austerity on European development budgets, countries to support a new measure to compare the new German government deserves praise for its countries’ contributions to global development and decision to increase its aid budget for the period to proactively influence its design. 2013-2017 by a total of two billion Euro. The deci- From fixed quotas to optimal use sion on how to spend the lion’s share most probably apportioned to the Ministry for Economic Coopera- In terms of ‘funding channels’, the has tion and Development (BMZ) will be one of the first historically requested the BMZ to allocate roughly major tasks of newly appointed minister Gerd one third for multilateral and two thirds of its Müller. It will be a first test for the minister’s political budget for bilateral, and channels. The Bundestag ambitions of how he handles claims on the addi- further earmarks funds for financial and technical tional funds and what kind of relationship he will cooperation as well as other channels, which is a build with the Bundestag committee members who rather strong hands-on role for parliament. The endorse the budget. The minister should use the existing quota approach has in fact long been criti- upcoming budget negotiations as an opportunity to cized for its lack of rationale other than preserving break with traditional entitlements and vested inter- the status-quo, particularly for Germany’s state- ests and to further develop a flexible and perform- owned enterprises for financial and technical coop- ance-based aid system. eration, KfW and GIZ. Beyond the commitment to the large aid increase, What to do? further details are still open. Arithmetically, annual The minister needs to ensure that the budget in- increases of 200 million Euro would be needed to crease leads to a genuine increase in Germany’s con- fulfil the commitment by 2017. While the coalition tribution to international development. While the agreement specifies a number of priority sectors, the coalition should be commended for having taken important question of how the funds should be important steps towards a more performance-based allocated across the various aid channels remains aid system, it will require significant political courage unanswered. to continue down this path and a growing budget in Measuring commitment to development a manner consistent with this principle. First and foremost, it requires an objective assessment of the While difficult to predict, the increase will do little to relative strengths and weaknesses of all channels of achieve the commitment of 0.7% of GNP for official German aid – and to orient the budget accordingly. development assistance (ODA) which stood at a mere 0.37% in 2012. The previous Minister Dirk Niebel was never able to The 0.7% target is widely recognized as having been fully convince critics that his attempts to conduct instrumental in holding governments to account. At multilateral assessments were aimed at establishing the same time, because of significant global the basis for an unbiased assessment of all channels changes, the role and relative influence of ODA in – rather than serving as a pretext to cut multilateral promoting development has changed profoundly. funding and to increase bilateral aid. Second, such The OECD is currently debating a potential revision assessments need to be guided by clear objectives of the ODA concept which could fulfil a similar role and an overall strategy that provides direction and a in comparing countries on the financial inputs they basis for accountability. Third, releasing the aid sys- provide for international development. While an tem from its traditional entitlements will raise new ODA target would continue to play an important and challenging questions on the linkages and divi- role, it should not overshadow or substitute for the sion of labour between different aid channels. What need to compare countries and organisations on the tasks are best given to the , and actual contributions made to development results. where is GIZ better placed? To what extent should NGOs support German development policy? What is Instead of criticizing the ODA concept and its associ- the optimal division of labour between KfW and the ated target from the perspective of a poor per- private sector? A sound understanding of the vary- former, a more promising approach for Germany ing contributions of different global development would be to first improve performance under the actors will be crucial for a successful transformation existing system through further advances towards to a performance-based aid system in Germany, and the ODA target and by managing its aid budget in a it is high time to face these questions. highly efficient and performance-oriented manner.

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