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Development blog: The $138.5 Billion Question: When Does Foreign Aid Work?

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The policy debate around whether foreign aid—now $138.5 billion a year—works has been polarized between the “Oh yes it does” camp and those who respond “Oh no it doesn’t.” (Christmas pantomime anyone?)

Claims that aid is responsible for impressive improvements in human development over the past couple of decades are clearly not credible. Yet, equally difficult to sustain are claims that aid has been entirely useless. It’s more useful to ask when aid works, not whether.

Scholarly studies have been doing just that for at least a decade. So Jonathan Glennie (now director of policy and research at Save the Children) and I thought we’d take a look and review the state of thinking on aid effectiveness. Specifically, we looked at the cross-country, peer-reviewed, econometric studies that focus on assessing if or under what conditions aid is effective in achieving its stated outcomes, particularly those related to economic growth or social development. The resulting CGD Policy Paper is here.

Before reaching any conclusions, however, we had to overcome some definitional challenges:

What does ‘work’ even mean?

Take growth, for example. Does aid ‘work’ when growth is higher than it would have been without aid? Or is it establishing the preconditions for self-sustained growth without aid in the future? Or is it a contribution to growth that represents value for money (however that is defined)? 

In our paper we are constrained by how the literature has approached this question. We thus take aid ‘working’ or ‘effective aid’ to mean aid that contributes to or is associated with, even if only modestly, positive development outcomes such as economic growth and social development. Of course, the lack of a counterfactual is the biggest barrier to ever knowing for certain the impact of aid.

What counts as aid?

Aid is delivered in many forms and has diverse and complex objectives and motivations. It is quite plausible and, given the copious amounts of conflicting opinions on the subject, also probable that different types of aid achieve (or don’t achieve) different objectives.

Most of the recent econometric studies our paper reviews use effective development assistance, which is an aggregate measure of aid flows that includes all grants and grant equivalents of loans. In other words, it’s a measure of concessional transfers to developing countries that emanate from governments of donor countries (funded by taxpayers of these countries) and that at least in principle or in claimed intent aim to contribute to development.

So, what did we find?

First, the majority of studies on aid are positive—but the impact of aid is often modest. Of course there are numerous methodological caveats as we discuss though suffice to say a review of studies puts aid skeptics in the minority at the moment.

Regarding social development, there are relatively few studies, so caution is required. Still, the cross-country education aid studies and monetary poverty studies are positively associated with growth, and health aid studies, while more mixed overall, are also mostly positive.

However, emerging from all of the reading was one fact—the conditions under which aid works are mentioned in most studies. We developed a way of mapping this as: (1) the country context, meaning the characteristics of the recipient country and national government policies; and (2) aid management, meaning the characteristics of aid and donor policies and practices.

We then took a look to see where we might say there are signs of convergence or signs of divergence or insufficient studies to make any judgment.

We also linked our discussion to the other aid effectiveness literature—the policy literature of Paris/Busan and so forth.

We found four factors likely to improve aid effectiveness suggesting donors might want to look at each of the as country level.

First, aid levels: aid is more likely to work in the correct dosage but is ineffective if too high or too low.

So more aid is good for the world’s poorest countries right? Not necessarily so. One needs to consider existing levels of aid. Aid is likely to have diminishing returns as it grows relative to the size of the economy and those returns can even turn negative. In addition, at low levels, aid may have little impact on growth. But there are differences in the level below or above which aid is ineffective in promoting growth.

This is an important finding not because it is surprising—it shouldn’t be—but because of the neglect of this critical element of aid effectiveness in policymaking circles. In the most important aid effectiveness process (the Paris agenda and its successor meetings) the issue barely merited a mention. 

Second, domestic political institutions: aid is more likely to work if the institutions are in place—for example, political stability and not too much decentralisation.

Also unsurprising is that some of the papers we review emphasize the role of domestic political institutions. Although an article of faith for many for at least a decade, the type of domestic political institutions likely to increase aid effectiveness is less clear. Political stability and levels of decentralization are two issues the evidence points towards. The difficulty here is whether donors can do much about these or accept working in contexts with certain kinds of institutions is likely to be less effective.

Third, the aid composition: aid is likely to be more effective in certain sectors and aid objectives and time horizons matter a lot.

The effectiveness of aid depends on its objectives, sectors, modalities, and time horizons—essentially what the aid is intended for. For example, aid effectiveness for growth is improved if aid focuses on ‘developmental aid’ (i.e., aid that seeks to promote development objectives such as growth) or if the composition of aid is directly aimed at affecting growth (e.g., building roads, ports and electricity generators, supporting agriculture).

Additionally, budget support (or ‘program’ aid) and project aid for real sector investments is likely to be more effective for growth than other types of aid. But caution is required as aid in sectors like health and education may only affect growth after a long period of time and thus may simply be difficult to detect rather than be non-existent.

Fourth, aid predictability and concentration: aid is likely to be more effective if it is not volatile and fragmented.

While our finding on aid levels is nearly absent from dominant aid effectiveness debates, our finding on aid volatility is ubiquitous in them. Reducing aid volatility and fragmentation has been a key feature of the Paris agenda. Unfortunately, this focus has not led to significant improvements. According to the 2011 Paris Declaration Monitoring Survey, only 43 percent of aid was predictable in 2010 (compared to 42 percent in 2005) and there was a similarly disappointing increase in the use of common arrangements, joint donor missions, and joint analytical work. 

And finally, two big unknowns

There are two areas where there is little convergence in the evidence, despite oft-cited claims to the contrary.

The first is goodie-goodie—read orthodox— macroeconomic policy. Bill Easterly’s 2004 rebuttal placed a large question mark over a previous core belief in official development circles that aid supports growth when the recipient country is implementing certain macroeconomic policies generally described as ‘good’ or orthodox policies. Now there is no consensus. There are studies on both sides of the fence.

And the second is that there is no consensus that grants are better than loans (or vice versa) for aid effectiveness. This is not to say that in different contexts grants may be more appropriate than loans, or vice versa, simply that there no generalizations can be made.

What to conclude?

So what to conclude from all of the above? First you just read in four or five minutes a 45 page paper, so nuances get lost.  Further, methodological contentions still remain, so don’t get too carried away. But it’s clear that despite the yes-it-does, no-it-doesn’t character of the public policy debate, the scholarly debate has moved sufficiently beyond that pantomime to tell us more about when aid is more likely to work. So while we and CGD pals would be first to say that development is about a whole lot more than aid, we can say that shifting the debate from whether aid ‘works’ to when aid works and how it can work better would contribute to better aid policy decisions in the real world, move away from mostly theatrical claims and counterclaims, and might even serve to reinvigorate global support for aid.  We hope our paper lays some of the groundwork for that to happen.

 

Authors: Andy Sumner View Profile

Global Health blog: Responding to Ebola’s Long-Term Threat to Development

View of the ECOSOC chamber during the Ebola impact discussion 12/5/14. The ears belong to me (on the left) and Dr. Melanie Walker of the World Bank (on the right)

On December 5, the United Nations’ Economic and Social Council (ECOSOC) hosted its first meeting on the Ebola epidemic’s long-run implications on development in the affected countries.  

The meeting agenda was overstuffed with speakers. UN Secretary-General Ban Ki-Moon and WHO Director-General Dr. Margaret Chan both gave strong presentations detailing the Ebola threat and progress on the response. However, neither speech contained information that would be new to those reading newspaper accounts of the epidemic or following blogs like ours. The most compelling presentations came by video from the ministers of finance of Guinea, Sierra Leone, Liberia, and Mali, the four countries currently managing the active spread of Ebola. They provided a litany of examples of economic breakdown, which I and others at the World Bank forecasted here and more recently here.

As a panelist, I fielded two questions from Dr. Paul Farmer, Special Adviser to the Secretary-General on Community-Based Medicine and Lessons from Haiti. The first was on how the West African economies will be impacted by Ebola. I explained fear—or more precisely “aversion behavior”—not the disease itself, will have the greatest effect on the countries battling the epidemic. (Read more about the impact of aversion behavior here.) 

The second question was on how to mitigate aversion behavior after the epidemic is under control.  Unfortunately, because of continued aversion behavior, economic growth may not resume at the same pace on its own. Rapid abatement of observed aversion behavior will require that people everywhere perceive all African countries as safe places to live, work, and visit. In order to have the confidence to resume trade and travel, people need to be assured another disease outbreak like Ebola is not imminent.

One possible answer mentioned by other participants is “strengthening African health systems,” but this phrase doesn’t specify how “strong” the systems need to be or how governments and donors can bring about the desired “strengthening.” Do African health systems need to be as strong as European or American ones, which limited the Ebola outbreak to individual cases? Or only as strong as the Nigerian and Senegalese systems which have so far seemed capable of containing the disease? Still, Liberia had only 50 physicians for the whole country before the epidemic, so even bringing the country’s health care up to Nigerian standards would require more money and health providers than available.

I advocated for a more cost-effective approach that has the added advantage of versatility: active case detection. This strategy refers to the deployment of mobile workers to test everybody in the population several times a year at their places of residence. With simple diagnostic kits, disease surveillance could be added to the tasks of other mobile teams, such as vaccination workers and even agricultural extension workers.  The practice is the opposite of “passive case detection,” which is building health centers and waiting for sick people to come, be tested, and sometimes declared infected with the disease.  In contrast to a passive approach, active case detection would act as an “early warning system,” so diseases are discovered and contained before health systems are damaged or infections spread to urban areas.

Health systems advocates are not going to like the suggestion that active case detection will achieve cost-effective disease surveillance, because it suggests one could graft a disease surveillance strategy onto an otherwise weak health system. But I’m not sure their objection is justified. For me, it’s an open question whether any African health system, no matter how comprehensively it is strengthened, could withstand an Ebola (or similar) outbreak unless it has forewarning from an active case detection system and benefits from a rapid deployment outbreak response team mobilized by such a system.

If we are to reassure workers, parents, investors, and tourists that a future outbreak is unlikely (or would be immediately contained) in West Africa, while protecting the world from future zoonotic disease outbreaks, we need to improve the response time of outbreak response units.  Active case detection may be the quickest and most cost-effective path to this objective. 

Authors: Mead Over View Profile

CGD Publication: Value Subtraction in Public Sector Production: Accounting Versus Economic Cost of Primary Schooling in India - Working Paper 391

Value Subtraction in Public Sector Production: Accounting Versus Economic Cost of Primary Schooling in India - Working Paper 391 12/9/14

We combine newly created data on per student government expenditure on children in government elementary schools across India, data on per student expenditure by households on students attending private elementary schools, and the ASER measure of learning achievement of students in rural areas. 

CGD-Working-Paper-391-Pritchett-Aiyar.pdf

Development blog: CGD to Help Pick 2015 “Win-a-Trip” with Nick Kristof Contest Finalists

You can probably recall the moment when you caught the ‘global development bug.’ CGD president Nancy Birdsall has talked about an eighth grade report on Africa, and Todd Moss has said it was when he studied in Zimbabwe. As an avid New York Times reader, my moment was Nicholas Kristof’s coverage of Darfur in 2004. I was intrigued by Nick’s ability to make the complicated and tragic events taking place in a country so far away – and a culture so far removed from my own – understandable and relevant. Now, after a decade of following Nick’s column, and in an exciting turn of events for me personally, my colleagues and I will help Nick choose the winner of his 2015 “Win-a-Trip” contest.

On Sunday, Nick kicked off his annual contest to select a student to take on a reporting trip to the developing world (possibilities this year include Congo, India, and Nepal). And for the fifth year in a row, CGD is thrilled to help Nick vet and narrow down the applicants to a short list of finalists, from which Nick will select the winner. 

So, what’s Nick looking for in this year’s winner?  In his own words, the winner will be “a smart undergraduate or graduate student with great storytelling skills who wants to help shine a light on neglected issues.” One goal of the trip is for the winner to inspire other students to become interested in development issues through blogs and videos that will be posted on the New York Times website.

But, Nick warns, this opportunity is not for someone who is easily frightened by bedbugs or warlords: “We will be bouncing over awful roads, we’ll be eating wretched food, and you may well get sick. Hotel rooms may come complete with bedbugs and rats. And we’ll be on the go from dawn to dusk.” (If you want to see what you’re getting yourself in for, watch Nick’s interview with 2014 winner Nicole Sganga or check out Reporter, an HBO documentary based on Nick’s 2007 Win-a-Trip journey to Congo.)

Interested applicants can apply by submitting their 700-word essay and/or 3-minute video here. Submissions should explain why Nick should pick you – not gush about his writing (although I hope he forgives me for doing so above!). Nick’s looking for a great communicator, so be sure to mention if you blog or have video experience, and share links where possible.

Apply here

The application deadline is midnight (Eastern Time) on January 7, 2015. To be considered you must be a resident in the United States, a student at an American university, and available to travel with Nick in spring 2015. All applicants are encouraged to review the full contest rules here.

Best of luck to all the applicants!

Authors: Lauren Post View Profile

Development blog: Growth as the Cornerstone of the SDGs

I’m pleased to be on this list of “top economist” signatories of an open letter to UN Secretary-General Ban Ki-Moon endorsing the simple idea that economic growth should be the foundation stone on which the other Sustainable Development Goals, especially poverty reduction, are built. (I’m the only non-professor on the list; whether professor or not, and whether economist or not, if you agree, leave a comment below, or tweet this blog post).

Most people can agree that everything on the current list (of 17 proposed SDGs) makes sense; the issue is what gets priority, for domestic and foreign financing, as a means (growth is a means to many ends), and what gets priority for financing as an end, directly (e.g., health and education). In the case of the Millennium Development Goals, ends such as reducing infant mortality got more attention and investment (and more aid money) than what might in some cases have been higher-return investment in means such as growth and infrastructure.  The word on the street is that developing countries now want more attention to the means to achieve many ends.  

Growth is mentioned in the proposed list of 17, but it’s #8 and the central truth of its necessity is obscured by complicated and compromise-driven (I suspect) modifiers: “Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.”

A simpler goal would be clearer: “Promote economic growth,” or perhaps “Promote poverty-reducing growth.” 

It is growth that ultimately empowers societies and their peoples to find their own solutions; with healthy growth in Africa in the last decade, Africans (Andrew Mwenda, Dambisa Moyo) are asking whether foreign aid is a good thing at all. The same is true at the level of families and people: even if you’re still poor by Western standards, being able to buy a scooter expands not only your access to good jobs but your mental horizons.

I realize endorsing “growth” without any caveats is controversial.  It is true that growth without appropriate pricing of carbon and other pollutants, water, access to fisheries, and other public goods is problematic; climate change and its threat to development outcomes is an apt example. But the fundamental problem is not growth itself but the difficulty of forging appropriate and far-sighted public policies to deal with public goods and other so-called externalities; that difficulty is only worsened by low growth and shrinking opportunities, which weary citizens and discourage legislators from ambitious policy fixes. The historic record suggests that it is growth that creates social demand for environmental services, reduces intolerance, and encourages public and private investment in technological change.  Growth in that sense has beneficent “moral” consequences and so provides far more than merely material benefits.

To endorse growth is not to deny the logic of ending poverty as a worthy goal; it is only to remind that growth has proved (so far) necessary and often sufficient for reducing poverty (in China, in India, in Latin America despite high inequality, and in Africa over the last decade), and to admit that ending poverty is far too modest a goal in today’s world (as Lant Pritchett argues here).  Nor is to endorse growth to ignore the challenge of fair growth (aka inclusive growth aka shared prosperity) or the fact that inequality matters for many reasons including because, in an often vicious circle, it can inhibit growth itself.

If you agree, as our open letter concludes, that a clear commitment to strong, economic growth needs to be at the forefront of the post-2015 development, leave a comment below. If you disagree, well, let’s have that comment too.

Authors: Nancy Birdsall View Profile

CGD Event: Global Health Market Shaping Forum: Discussion of the Practice and Potential

Global Health Market Shaping Forum: Discussion of the Practice and Potential 12/17/14

Global health is inextricably linked to the health of the marketplace that delivers lifesaving products to low-income populations. A well-functioning health care market requires manufacturers to produce high-quality products, distributors to deliver the necessary quantities, providers to administer them correctly, and patients to be educated and active participants in their own health care. However, markets sometimes fall short.

The USAID Center for Accelerating Innovation and Impact (CII) recently launched Healthy Markets for Global Health: A Market Shaping Primer, a report that examines how market shaping can increase access to critical health commodities by reducing transaction costs, increasing market information, and balancing supplier and buyer risks.

We hope you are able to join us on December 17th for a discussion of the Market Shaping Primer and how market shaping experiences across the HIV, malaria, and other health sectors can inform future opportunities.

Registration begins at 4:00 p.m. and light refreshments will be available.

CGD Event: Health-Wealth Trade-offs: Effects of Mineral Mining in Developing Countries

Health-Wealth Trade-offs: Effects of Mineral Mining in Developing Countries 12/18/14

Please join us for a brown-bag lunch event featuring Jan von der Goltz’s presentation of his recent paper with Prabhat Barnwal assessing the health and wealth effects of mines on nearby communities. Their paper is the first extensive analysis to use microdata from communities near about 800 mineral mines in 44 developing countries. The authors find that mining communities enjoy a substantial medium-term rise in asset wealth, but encounter substantial health trade-offs: a ten percentage point increase in anemia among adult women and a five percentage point increase in the prevalence of stunting in young children.

Von der Goltz and Barnwal’s research is consistent with prior evidence linking the health impacts of mines to metal toxicity and, in particular, exposure to high levels of lead. Their assessment finds health impacts only near mines of a type where metal pollution is to be expected, and it finds no systematic evidence of health effects that are not associated with exposure to metal pollution. Both the wealth benefits and health costs are strongly concentrated in the immediate vicinity (≤ 5km) of a mine. To demonstrate that the observed health impacts are due to pollution, they developed three difference-in-difference tests tailored to the known association of certain mine types with heavy metal pollution, and to the pathophysiology of lead toxicity. The results add much needed data to the literature on health impacts near industrial operations in developing countries.

Development blog: Up and Down the SIB Road: How Far Have We Come?

There is no denying that interest in Social Impact Bonds (SIBs) is steadily growing: with investments coming from big banks like Goldman Sachs and Bank of America Merrill Lynch and approximately 26 SIBs implemented in industrialized countries across the globe (see below for a more detailed listing), an evidence base is starting to accumulate on what works and what doesn’t. So far, the evidence on Social Impact Bonds – that they enable innovation and improve service delivery through better use of data – suggests that this approach has huge potential for improving international development programs.

CGD has been exploring through its work on Development Impact Bonds the ways in which the SIB model, first piloted in the UK, could be tested in developing countries and could create a better business model for the way programs operate.  While DIBs are a new concept – so far only one has been launched in June of this year with service provision to begin next year – the SIB market has been gradually growing since the launch of the first SIB in 2010. The evidence gathered over the next few years will determine whether SIBs can catapult to being a standard option for funding programs in the social sectors.

This was part of the discussion at a launch event hosted at Bank of America Merrill Lynch (BAML) in London on the 31st  of October, where BAML and Bridges Ventures presented their joint publication “Choosing Social Impact Bonds – A practitioner’s guide”. The report shares lessons learned during SIB implementation processes over the last four years. Although no SIBs have been completed and fully evaluated yet, clear emerging lessons arise from several pilots that can be applied to future SIBs and DIBs. We have discerned two key takeaways: 

1) SIBs increase the scope for innovation in service delivery

A focus on outcomes and a flexible funding model are proving to trigger an increase in the scope for innovation. The BAML-Bridges Ventures report highlights two examples from the UK in particular: In Greater Manchester, the UK Department for Work and Pensions Innovation Fund has commissioned a SIB with the “Teens and Toddlers” program. Although Teens and Toddlers has already developed a track record for increasing self-esteem and tackling disengagement among youths by pairing teenagers with toddlers, its reach and impact expanded under the SIB, as Social Finance UK, the intermediary in this case, further discuss in this report of the SIB’s first year.

The Teens and Toddlers program initially involved working with teenagers for 18 weeks, through nursery placements and personal development group work to help them acquire a sense of direction, positive relationships and responsibility. For the SIB in particular, a second stage was added which applies skills teenagers have learned to school behavior and academic studies, and tracks teenagers’ progress through to their secondary school exams. In Stage 2, students set learning and behavioral goals and address issues that could impact their academic performance. The SIB provided sufficient room to establish and innovate the program to include specific educational outcomes; in addition, the flexible funding model allowed the provision of a sub-contractor who would tutor students in English and in Maths to guarantee the best outcomes.   

The second example, in Essex, implemented by “Action for Children” together with Social Finance UK and Essex County Council, utilizes the Multi – Systemic Therapy (MST) intervention method. This method is applied to prevent children aged 11-17 in Essex who show anti-social or offending behavior from going into care by providing therapeutic support to them and their families, throughout weekends and overnight where necessary. The intervention focuses on positive behaviors and strengths of the young person and family to encourage long-lasting change. Like “Teens and Toddlers”, MST is an evidence-based program with a good track record and global footprint, but it had not been implemented on a wide scale in the UK. When the SIB was developed, Essex County Council was hesitant to fund a new and intensive program upfront while resources for children’s services were constrained. Under the SIB, investors provided the financing for a five and half year intervention program that aims to work with 380 young people, while Essex County agreed to only paying for successful results. The SIB also includes an “Evolution Fund”, which is a discretionary fund that gives the NGO service provider the flexibility to incorporate new services into the program, if needed, to address individuals’ needs (see this report for more details about how the SIB is working).

The most important aspect of increased innovation under SIBs is therefore that local service providers are implementing changes themselves, but receiving flexible funding in order to be able to do so. This is also true in the case of DIBs. According to Robin Horn, Head of Education at the Children’s Investment Fund Foundation (CIFF), the outcome funder for the first DIB, “the local service provider has the main say and outcomes are not just based on the knowledge of funders.”  

2) Better data collection leads to improving service delivery

SIBs are also showing that better data management systems - implemented to ensure objective validations of outcomes - have led to an improvement in service delivery. David Robinson, chair of the One Service Social Impact Bond Advisory Group for the Peterborough SIB, explained that following the SIB model has planted an incentive structure for an improved dataset service. Typically, service providers or intermediaries who manage service providers develop improved data systems to track performance in a timely and accurate way. For example, during the course of the intervention period of the Peterborough SIB, it became clear that the cohort’s reoffending behavior greatly depended on unresolved mental health issues. This led to the implementation of mental health services, which were not a part of the original package of interventions. Effective use of data - or learning by measuring –proves to be at the heart of things.

Another recent example from the Center for Employment Opportunities (CEO), the service provider of the SIB to reduce recidivism in the State of New York, shows a similar development: data is collected regularly on an individual level and, as a result of weekly calls between CEO and parole officers who identify eligible individuals, a new forum for sharing data materialized and once again services were able to more quickly respond to peoples’ needs. The report highlights interviews with people directly involved who say that these improved systems and improved coordination have been transformative for the government and the service provider.

These key takeaways are a good reminder about why partners from various sectors came together to implement SIBs in the first place. As the BAML guide mentions, the cross-sector partnerships prove to be one of the most encouraging aspects of a SIB: they have created an on-going dialogue about the best way to tackle pressing socio-economic issues, with each partner doing what it does best. 

The DIB market is younger, but lessons are beginning to emerge from early experiences in the development of DIBs too; a range of partners who have been involved will be taking stock at a conference in London on December 10th.

The fact that SIB partners are taking advantage of expanded space for innovation and improved data collection systems is a good reminder that we can improve development programs on these dimensions too, and one reason why we hope to see DIBs quickly implemented.

Authors: Catalina Geib View Profile Rita Perakis View Profile

Development blog: How Germany Copes with REDD+ Dilemmas

One of the most attractive features of the Cash-on-Delivery approach to development assistance is precisely that payments are made (only) for performance against agreed indicators of outcomes.  If desired outcomes are not achieved by the recipient country, the donor country doesn’t pay.  But this very feature could create one of two very different dilemmas for donors: 

  1. What if donors offered a financial reward for performance, and prospective recipient countries were unable to overcome the political and technical obstacles necessary to claim it?
  2. Or what if so many countries came forward to claim the reward, demand exceeded the funding available?

A new CGD Working Paper, “The Politics of German Finance for REDD+” by Dr. Till Pistorius and Laura Kiff of UNIQUE Forestry and Land Use GmbH, lets us eavesdrop on candid conversations with experts in the German aid establishment about these dilemmas in the context of payment for reducing deforestation.

A strong tradition of finance for forests…

To understand German support for forests internationally, you have to go back a few centuries.  Just over 300 years ago in 1713, Hans Carl von Carlowitz invented modern forestry as a way to deal with rapid deforestation and wood shortages caused by the mining industry and urbanization in Saxony. According Pistorius and Kiff, an appreciation of the timber and non-timber benefits that come from sustainable management of forest resources has resulted in “strong emotional ties between Germans and their forests” that prevail until today. 

With domestic deforestation no longer a problem, over the last three decades Germans have extended these ties to tropical forests. In addition to numerous long-standing bilateral assistance programs in forest-rich countries, Germany has been a key participant in multilateral forestry initiatives dating back to the Tropical Forestry Action Plan (TFAP) in 1985, and the Pilot Program to Preserve the Brazilian Rain Forest launched in 1992. 

Indeed, at CGD-sponsored event on climate finance last year, Artur Cardoso de Lacerda of Brazil’s Ministry of Finance singled out German support for capacity building over the long haul as a contributor his country’s extraordinary performance in reducing deforestation:  

To be very honest to Brazil being in the position that we are now in terms of governance and capacity, we have received a lot of external support. Just one example—Germany has been supporting Brazil in terms of improving its management capacity in the forest sector for more than thirty years. So although we have a lot of responsibility for the results we have, we have to acknowledge that this support has been really instrumental to put us in this position nowadays.

Germany has now embraced REDD+ as a promising mechanism to realize a broad range of benefits from sustainable forest management, including conservation of biodiversity and ecosystem services as well as reduction of forest-based climate emissions. According to Pistorius and Kiff, controversy over REDD+ has been virtually nonexistent in the domestic political arena in Germany.  With the exception of a brief NGO-generated debate on forest offsets and safeguards in the run-up to the climate negotiations in Copenhagen in 2009, a broad consensus has supported international forest protection as a climate mitigation strategy.  As a result, debate about REDD+ has been limited to an “experts’ discourse” rather than broader discussions in the Parliament or the press.

…but recognition of limited results creates openness to results-based finance

One of the reasons that REDD+ appeals to German experts is their recognition of the limited effectiveness of traditional models of development assistance in the forestry sector.  With perhaps the important exception of Brazil noted above, those models have not succeeded in helping partner countries slow deforestation.  Performance-based finance offers the promise of a more effective approach.  The following are statements from two experts interviewed for the study:

German cooperation has supported sustainable forest use and development for 30 years, and its success has been limited. Now there is a hope that there is a shifting paradigm with REDD+ because of its performance-based payments. I think this is one of the most attractive elements, as it is a new dimension of international cooperation where the partner country is more responsible. In this sense it’s based on performance and not just development aid without any conditions.

The concept of results-based payments is very attractive. Even in traditional ODA we probably need to head in this direction, so that it will require more ownership and responsibility from the countries.… It may be a painful process for some of countries, but I don’t see many alternatives because with the traditional ODA, what we did for 30 years, the success was limited. I think it would not be wise to go back to the old system.

In order to pilot the feasibility of results-based finance to reduce deforestation—and maintain the confidence of forest-rich countries and subnational jurisdictions while climate negotiations and the establishment of multilateral funding mechanisms drag on— Germany established the REDD+ Early Mover (REM) program.  The REM program’s recent conclusion of an agreement with the state of Acre in Brazil is a welcome addition to the still-small “n” in the universe of REDD+ experiments at scale that will help us all learn the degree to which trees can grow on money.

What if we build it and nobody comes?

Long-standing, deep engagement of German experts in the forestry sectors of developing countries supports an especially nuanced knowledge of the governance challenges that would have to be addressed in order to reduce deforestation.  This history of “hands on” involvement has bred skepticism regarding the degree to which “hands off” performance-based funding will be sufficient to overcome such challenges, especially in countries in sub-Saharan Africa where forest management capacity is low. 

And indeed, the REM program has discovered that the number of “early movers”—countries or subnational jurisdictions positioned to take advantage of finance for verified reductions in forest-based emissions—is fewer than initially anticipated. Further, the process of achieving “readiness” is proving to take longer than expected.  According to one expert:

Just providing a chunk of money will not resolve anything. REDD+ from a financing perspective is new, but all the underlying issues have been linked with the objectives of development assistance and bilateral cooperation … ; yet they still remain important issues, and you need all of these components to put together a workable solution.

What if we’re not in a position to show them the money?

Paradoxically, some German experts also have anxiety about what would happen if too many countries achieved REDD+ readiness (and therefore eligibility for results-based, or “phase III” finance) too soon.  One expert said:

I have an uncomfortable feeling about the availability of funding for phase III, and I foresee already that REDD+ countries may become very impatient and frustrated if they see that the funding we promised a few years ago for phase III is not yet available.

Another expert commented:

In Warsaw we closed REDD+ negotiations on the REDD+ rule book, so the rules are there now, and they can be implemented. Like in Brazil—they did it. However, if more countries follow their example they will put us, the donors, in a very uncomfortable situation. They will say, so we are here now, where is the predictable stable finance you promised for result-based payments?

But maybe the two dilemmas do not constitute a paradox after all.  According to Heru Prasetyo, head of Indonesia’s new REDD+ Management Agency, the prospect of results-based finance may induce countries to move more quickly toward readiness in order to get that “pot of gold at the end of the rainbow.”  This would suggest that Germany’s “both/and” approach makes sense—putting money on the table for results-based finance could complement and improve the effectiveness of traditional capacity-building support.

Having lots of countries successfully reduce deforestation would be a really good problem for REDD+ donors to have, but how will they fulfill their commitments to reward those reductions? Donors could step up their pledges for results-based finance this week at UNFCCC COP 20 in Lima, and in the run-up to COP 21 in Paris next year, to avoid disappointment. If not, we may see forest countries begin to drive the pressures for donors to perform by outpacing pledges currently on the table. 

Authors: Frances Seymour View Profile

CGD Publication: The Politics of German Finance for REDD+ - Working Paper 390

The Politics of German Finance for REDD+ - Working Paper 39012/4/14

The concept of Reducing Emissions from Deforestation and Forest Degradation (REDD+) and its framing of forest protection as a climate mitigation approach mark a clear paradigm shift – after decades of up-front financing of traditional ODA projects REDD+ follows the logic of ex-post payments for measured and verified performance within much larger jurisdictions. 

CGD-Climate-Forest-Paper-Series-16-Pistorius-Kiff-German-politics-REDD.pdf

Development blog: Norway’s “Rainforest Billions”: How Did the Stars Align?

Seven years ago at the 2007 climate talks in Bali, then Norwegian Prime Minister Jens Stoltenberg shocked the world by pledging $2.5 billion over the next five years to reduce tropical deforestation. Since then, as described in a recent CGD Working Paper, “The State of REDD+ Finance,” Norway has remained the 10 billion kroner gorilla when it comes to putting money on the table for REDD+. As illustrated in the figure below, Norway’s pledges surpass those of the next five countries combined.

The 10 billion kroner gorilla: Norway pledges more for REDD+ than next five countries combined
Pledges for REDD+ 2006 – March 2014

Last month, we released a paper and accompanying blog detailing the challenges of climate politics, budget austerity, and aid rules that constrain REDD+ finance from the United States. How has Norway avoided such constraints? We also released a paper and blog reviewing the political opposition generated by a proposal to include international forests offsets in California’s cap-and-trade program. By contrast, why has Norway’s finance of REDD+ provoked so little controversy in the domestic political arena?

A new CGD Working Paper, “Climate Policy Constraints and NGO Entrepreneurship: The Story of Norway’s Leadership in REDD+ Financing,” by Erlend A. T. Hermansen of the CICERO Center for International Climate and Environmental Research–Oslo and Sjur Kasa of Hedmark University College, answers these questions and many more.

Lack of political, financial, and bureaucratic constraints

Hermansen and Kasa illuminate how the stars aligned to support Norway’s initial “rainforest billions” commitment, and to maintain that support over the last seven years, through a change in government last year. In short:

  • There was (and is) overall consensus across the political spectrum on the importance of taking action on climate change.
  • The limited options for low-cost domestic emission reductions made investment in reducing emissions from tropical deforestation attractive to a range of constituencies.
  • A growing economy, combined with a target of 1 percent of Gross National Income (GNI) for overseas development assistance (ODA), allowed the new rainforest commitment to be incorporated into the aid budget, thus circumventing the fiscal conservatism of the largest political party and the Ministry of Finance. Framing the commitment as performance-based finance also increased its palatability across the political spectrum.
  • The initiative was championed by Erik Solheim, who from 2007 was simultaneously playing the roles of Minister of Environment and Minister of International Development. By creating a new Climate and Forests Secretariat under the Ministry of Environment, the Norwegian International Forests and Climate Initiative (NICFI) was able to bypass the “cautiousness”(and many of the norms) of the Norwegian Agency for Development Cooperation (Norad).
NGOs as policy entrepreneurs

But the stars did not align all by themselves. As tipped in the title of their paper, Hermansen and Kasa emphasize the role of NGOs as policy entrepreneurs in generating and sustaining the rainforest billions commitment.

In 2007, the leadership of Friends of the Earth–Norway and the Rainforest Foundation Norway saw a window of opportunity as climate change rose on the domestic and international political agendas. Friends of the Earth–Norway proposed a crosspolitical “climate settlement,” leveraging the desires of the ruling parties and the opposition to show leadership on the climate issue.

The NGOs also linked their proposal to international developments, mobilizing support from the Brazilian Minister of Environment Marina Silva and civil society leaders from Brazil for prospective Norwegian funding for reduced deforestation. (For more on parallel developments in Brazil during this period and the country’s remarkable success in reducing deforestation, see the background paper by Sergio Abranches and associated blog.)

And by providing legitimacy, NGO support for the initiative might also help explain the relative absence of domestic controversy over NICFI, even in the face of concerns about corruption and safeguards in the context of REDD+ implementation described in the paper. The authors speculate that NICFI’s “very generous funding for civil society projects” channeled through Norad—from which CGD as well as Norwegian NGOs have benefited—might also have dampened criticism.

Looking ahead

Hermansen and Kasa conclude that domestic political support is sufficiently robust that NICFI is likely to be a “centerpiece” of Norwegian climate policy for the foreseeable future. Ironically (and appropriately), the continuation of NICFI will be more dependent on political developments in partner countries than at home in Norway. Setbacks in the fight against deforestation in Brazil and Indonesia in particular could “undermine NICFI, and certainly make the planned future spending of Norway’s rainforest initiative difficult to achieve.”

Let’s hope that the stars remain aligned in the heavens above Norway as well as across the skies of forest-rich countries in the tropics for effective partnerships to reduce deforestation.

Authors: Frances Seymour View Profile

Development blog: The ADB Says Poverty Is Rising in Asia: I Have My Doubts

Would you believe that half of Asia lives in poverty and the absolute number is rising? That’s what the new Key Indicators report by the Asian Development Bank (ADB) would have you believe—49.5 percent in 2010, to be precise, with a poverty count of 1.8 billion, up from 1.6 billion in 2005.

This is surprising. Indeed, it runs counter to every other assessment I have seen.  Absolute approaches to measuring poverty over a very wide range of poverty lines (including $1.25 a day) have shown a decline in Asia’s poverty measures. And (weakly) relative poverty measures also show declining poverty rates, as is shown here. It takes a marked upward revision in the real value of the poverty line over time to deliver rising poverty in Asia. This calls for a closer inspection.

At the heart of the ADB’s new poverty counts is a set of three “adjustments” they make to the international line of $1.25 a day in 2005 prices. Taken separately, none of the three is enough to give rising poverty in Asia, but together they manage it. However, when I look more closely at the three adjustments, I have concerns about two of them.

The first adjustment is to switch to a regional line of $1.51 a day. To get this, the ADB has applied essentially the same method used to set the global $1.25 a day line, but solely on data for Asia. (The $1.25 line is the mean of the national lines found in the poorest 20 or so countries in the world; the ADB did roughly the same for the poorest countries in Asia.)  The $1.25 line was never meant to be the only line, and higher lines are defensible. Switching to $1.51 adds 10 percentage points to the poverty rate for Asia in 2010.

The second adjustment is to use the rate of food price inflation for adjusting over time whenever this is greater than the overall rate of inflation. This is odd. The authors acknowledge that people living around the median do not just consume food. In Asia, close to half of their expenditures go to nonfood goods. It can be granted that the official Consumer Price Indices for some countries put too low a weight on food for the purposes of poverty measurement. But the standard corrective is to reweight the index appropriately, not to simply switch to the food CPI when it rises more than the ordinary CPI.  This second adjustment adds 4 percentage points to the poverty rate for Asia.   

The third adjustment is for “vulnerability.” The aim here is to find the increment to the poverty line in a risky world that gives the same level of welfare as a risk-free line. This third adjustment adds 12 percentage points to the 2010 poverty rate.

There are a number of issues here. While this type of “welfare-consistency” is conceptually appealing for setting poverty lines, the report is not internally consistent. It argues for welfare consistency in dealing with risk, but implicitly rejects that principle for relative poverty lines, at different levels of development. Welfare consistency almost certainly requires setting a higher line in richer countries to compensate for the welfare loss from relative deprivation and the higher costs of social inclusion (as argued here).

It’s also not clear why the base poverty line ($1.25 or $1.51) should be treated as risk free; the underlying national lines were clearly not developed in a riskless world. As the report acknowledges, national poverty lines reflect the prevailing view of what it means to be “poor” in a given country. Such assessments are unlikely to ignore country-specific risk.  

I have other concerns about the report’s assumptions, and the problems will not be evident to many readers. Using some math, and numerous assumptions buried in quite technical boxes, the report derives a formula for the risk-adjusted poverty line corresponding to any given risk-free absolute line. Let me try to explain what all those equations in the report’s boxes mean.

“Risk” is assumed to take a rather special form, namely that it rescales personal income levels (it is “multiplicative”) and in a way that it is uncorrelated with the long-run income levels. The latter appear to be measured by overall regional averages. A single parameter reflecting relative risk aversion is assumed.

Are the assumptions plausible? Some observers will think that the ADB’s assumed parameter for the extent of risk aversion is on the high side. But for me the more worrying feature is that any rise over time in the overall interpersonal variance of incomes is taken to reflect an increase in their riskiness. Rising variance is passed onto their risk-adjusted lines. 

That is hard to accept. Plainly the rising income dispersion that we see in Asia and elsewhere stems in no small measure from rising inequality of wealth. Rising risk is no doubt a contributing factor, but it is not the whole story. To put it another way, the risk-free long-run interpersonal variance of incomes in Asia is almost certainly rising. Thus the ADB’s upward revisions to poverty lines overcompensate for rising vulnerability.

The ADB’s researchers have made a valiant, even heroic, effort to deal with what they see as the shortcomings of standard absolute poverty lines. In the end, however, I am not convinced by their calculations, or their implication that poverty is rising in Asia. 

 

Authors: Martin Ravallion View Profile

CGD Publication: Climate Policy Constraints and NGO Entrepreneurship: The Story of Norway’s Leadership in REDD+ Financing - Working Paper 389

Climate Policy Constraints and NGO Entrepreneurship: The Story of Norway’s Leadership in REDD+ Financing - Working Paper 38912/3/14

Norway – a small northern country with only 5 million inhabitants – is at present a global leader in REDD+ financing. In this paper, we explain why and how this happened by telling the story about the emergence of Norway’s International Climate and Forest Initiative (NICFI) in 2007 and its institutionalization in the following years. 

CGD-Climate-Forest-Paper-Series-15-Hermansen-Kasa-Norway-Leadership-REDD.pdf

Development blog: Why Aren’t Forests More Prominent on the Agenda for COP20 Climate Talks in Lima?

Conserving the world’s tropical forests is a critical element of any global strategy to protect against climate change—and promote development, for that matter—but we haven’t heard much about it being on the agenda for the COP20  climate talks in Lima starting this week. One reason for that: negotiations on forests were largely completed at COP19 with agreement on the Warsaw Framework on REDD+, and a new CGD Working Paper explains how.

But the stakes for forests in Lima remain high – see below for more on why.  First, let’s understand how the forest-related negotiations got out in front of the others.

Why were negotiators able to reach agreement on forests more quickly?

Why Forests, Why Now?

In “Two Global Challenges, One solution: International Cooperation to Combat Climate Change and Tropical Deforestation,” Antonio G.M. La Viña and Alaya de Leon of the Ateneo School of Government in Manila explain that the achievement of agreement on REDD+ was the culmination of an unusually constructive strand of negotiations.  The authors are particularly well-placed to tell the story, having both played key roles in REDD+ negotiations as members of the delegation from the Philippines.

La Viña and de Leon start by summarizing the history of previous attempts to reach international agreements on conserving tropical forests, including the failure to conclude a convention on forests among the outcomes of the Rio Earth Summit in 1992.  In the context of the resulting policy vacuum, the linkage of forests to climate change provided a timely opportunity to address two global challenges with one solution: REDD+.

La Viña and de Leon analyze how the politics of REDD+ were unique, with the national interests of various countries not splitting along the usual North-South divide.  Indeed, the relative absence of the G-77 and China as leading protagonists in REDD+ negotiations is notable.  Overall, the interests of industrialized countries in low-cost mitigation options lined up with the interests of forest-rich countries in generating a new source of development finance, although the positions of individual countries evolved over time.

A model for other areas of negotiation?

Despite an alignment of interests in reaching agreement on forests, doing so was not easy.  Negotiators had to address a long list of technical issues, such as guidance on setting reference emission levels (RELs) and rules for the measurement, reporting, and verification (MRV) of forest-based emission reductions.  Technological advances in remote sensing over the previous decade facilitated agreement on the inclusion of emission reductions from “avoided deforestation” that were not possible at the time of the Kyoto Protocol.  

Two particularly contentious issues had to do with finance and safeguards. Brazil, Bolivia, and many nongovernment stakeholders opposed finance of REDD+ through carbon markets, out of concern that offsets would enable industrialized countries to avoid reducing their own emissions.  Many countries and other stakeholders were also worried that market-driven finance would create perverse incentives to harm vulnerable communities and ecosystems, for example, through displacement of indigenous peoples or conversion of natural forests to plantations. Ultimately, “appropriate market-based approaches” were accepted as a financing option linked to compliance with a set of safeguards agreed at COP16 in Cancun in 2010.  Those safeguards would also of course apply to non-market-based sources of finance.

La Viña and de Leon describe how these challenges were addressed through an approach to negotiations that combined a number of features designed to nurture and build on incremental progress.  Technical issues were resolved before tackling political issues, and nongovernment stakeholders were giving an unusual degree of access to the discussions in order to secure their support for negotiated outcomes.  La Viña and de Leon see lessons learned from this approach as applicable to other areas of negotiation. 

What are the stakes for forests in Lima?

This week’s negotiations are a critical milestone on the road to COP21 in Paris next year, where a new global climate agreement is expected to be reached.

First, many observers are hopeful that the momentum created by forest-related commitments announced at the UN Secretary General’s Climate Summit in September via the New York Declaration on Forests will carry through to Lima, influencing the size and composition of national commitments being formulated for inclusion in the Paris agreement.  Indeed, the host of COP20, the Government of Peru, announced a REDD+ partnership with Norway and Germany in New York, so its own efforts to reduce emissions from deforestation will be in the spotlight.

Second, a few issues related to REDD+ are still on the negotiating table for methodological guidance, as La Viña and de Leon describe in their working paper, including non-carbon benefits, non-market-based approaches, and safeguard information systems.  An issue that could prove tricky is how to craft a comprehensive approach to account for land-based emissions, linking REDD+ to reductions in agricultural and other terrestrial sources of emissions.  While everyone agrees that such linkage is in principle desirable, doing so without unraveling the painstakingly achieved agreements specific to REDD+ would be a challenge.

Third, and most important, countries participating in REDD+ will be looking for signals in Lima that the international community is serious about providing finance commensurate with the task of reducing forest-based emissions.  With the REDD+ rulebook essentially complete, implementation is now effectively held hostage by the lack of broader agreement on a global emissions reduction strategy that would liberate large-scale finance for forests.  Recent (Brazil) and prospective (Indonesia) submissions of Reference Emissions Levels on the part of the two largest REDD+ countries increase the pressure on industrialized countries to be prepared to reward performance in reducing deforestation with results-based funding.

As detailed in a previous CGD Working Paper and associated blog, REDD+ finance so far has been too small, too slow, too public-sector dependent, too concentrated, and not sufficiently performance-based.  Recently announced contributions to the Green Climate Fund are promising, but there’s still a long way to go before reaching the $100 billion of climate finance per year by 2020 envisioned at COP15 in Copenhagen.  

La Viña and de Leon conclude from the experience of REDD+ negotiations that “international cooperation [on climate change] is not certain but it is certainly possible.”  Here’s hoping that negotiators reach the cooperation possibility frontier in Lima!

Authors: Frances Seymour View Profile

CGD Publication: Two Global Challenges, One Solution: International Cooperation to Combat Climate Change and Tropical Deforestation - Working Paper 388

Two Global Challenges, One Solution: International Cooperation to Combat Climate Change and Tropical Deforestation - Working Paper 38812/2/14

This paper provides an analysis of the international political dynamics around the reduction of tropical deforestation and forest degradation as a climate mitigation strategy, emphasizing the necessity of an enabling environment and sustainable financing to support the scaling up of these efforts globally.

CGD-Climate-Forest-Paper-Series-14-LaVina-DeLeon-International-Cooperation.pdf

CGD Event: Why Forests? Why Now? Events at the 20th UNFCCC Conference of Parties

Why Forests? Why Now? Events at the 20th UNFCCC Conference of Parties12/8/14

The Center for Global Development will host a reception on Monday, December 8 at the 20th UNFCCC Conference of Parties in Lima, Peru for a discussion and celebration of CGD’s forthcoming book Why Forests? Why Now? and the research of our Working Group on Performance-Based Payments to Reduce Tropical Deforestation.

Why Forests? Why Now? draws on scientific, economic, and political evidence to show that tropical forests are essential for both climate stability and sustainable development, that now is the time for action on tropical forests, and that payment-for-performance finance for reducing emissions from deforestation and forest degradation (REDD+) is a course of action with great potential for success.

The working group aims to understand the political, financial, and practical obstacles that are holding back what should be large flows of funds to forest-rich countries to reward them for measured reductions in deforestation. We seek to identify practical ways to accelerate performance-based finance for tropical forests in the lead-up to COP 21 in Paris.

The reception will take place on Monday, December 8, 2014 at 8:00 p.m. at the Casa Andina Miraflores (Av. La Paz 463, Miraflores). Frances Seymour and Jonah Busch will present a brief overview of the book and will join fellow CGD expert Michele de Nevers to give remarks on the working group. The discussion will be followed by a cocktail reception to conclude around 10:00 p.m.

CGD Publication: Predicting Partnerships: Which Countries Will MCC Select for FY2015 Eligibility?

Predicting Partnerships: Which Countries Will MCC Select for FY2015 Eligibility?12/1/14

The Millennium Challenge Corporation’s (MCC) board of directors is scheduled to meet on December 10. As usual, they will use this end-of-year meeting to vote on which countries will be eligible for MCC assistance for FY2015.

MCC-Selection-FY2015-Rose.pdf

Global Health blog: Major Progress at the Global Fund: A One-Year ‘More Health for the Money’ Update for World AIDS Day

Last September, we released a report on how the Global Fund could get more health for its money. In it, we offered concrete suggestions for improvements in several different value-for-money domains, all with an eye toward maximizing the health impact of every dollar spent.

A lot can change in a year. And during a recent reread of our own report, I was pleasantly surprised by how much the Global Fund has changed for the better, particularly in how it does business. So what’s been done, and what challenges remain? 

More Data-Driven Allocation

Under its old system, the Global Fund allocated its funding through a series of proposal rounds. During each round, countries could submit their requests for funding; good proposals would be approved and bad proposals rejected by an expert technical review panel  until all available funds were committed. 

While well-intentioned, this system was rife with problems. As we wrote in our report, “by failing to provide countries with a clear budget constraint, predictable funding windows, or rewards for efficiency, the Global Fund created strong incentives for countries to maximize their funding requests—often without considering actual need and other funding sources, or assessing their most pressing priorities given scarce resources.” Funding went to countries with the best proposals—not necessarily the countries that had the greatest need or capacity to deliver results. As a result, major differences (up to 5,000-fold!) were seen in per-case spending on HIV across countries, with no obvious justification for the discrepancies.

Fast-forward to today and the Global Fund now deploys an explicit, data-driven allocation formula to split scarce funds across countries on the basis of their disease burdens and ability to fund their own disease programs (the board originally voted to enact a formula-driven allocation approach in 2012; exact allocations for the 2014–2016 window were announced in March). As a result, funding is better aligned with countries’ respective disease burdens, and more predictable funding empowers countries to plan ahead with a clear understanding of the available resource envelope. In a new paper with Victoria Fan and Amanda Glassman, we conclude that this new “methodology is expected, but not guaranteed, to improve the efficiency of Global Fund allocations in comparison to historical practice.”

Still, the fund has experienced some growing pains during its ongoing transition to the new approach. The split of funding across the Global Fund’s three target diseases is based on historical practice rather than objective criteria, and the relatively low allocations for malaria and tuberculosis (32 percent and 18 percent, respectively) remain controversial. Within each disease area, the sources to inform cross-country allocation are inconsistent. In particular, the use of malaria data from 2000 was intended to protect countries where continued funding is required to sustain recent gains; in practice, the fund’s own technical review panel  worries that “allocation amounts … may no longer reflect the most strategic investment of resources.” Finally, during the first wave of New Funding Model proposals, confusion about the role of “incentive funding” and competition for its allocation proved a major distraction. But the Global Fund has absolutely taken a step forward toward a strategic, evidence-based approach, and we look forward to watching further refinements over the next few years.

More Results-Based Contracts

In our report and a related paper, we recommended that the Global Fund restructure its contracts to incentivize better results. One year later, we’re pleased to see the fund embrace piloting of results-based contracting mechanisms with open arms, and we’re even more excited to be part of the action.

Here are some highlights: In Rwanda, the Global Fund has signed on to a pilot project where payments are tied to performance against specific HIV outcome indicators. In Mesoamerica (countries of Central America and southern states of Mexico), the fund is supporting a Cash-on-Delivery model to reward countries for progress toward malaria elimination. In Benin, the Global Fund is partnering with the World Bank’s Health Results Innovation Trust Fund to support results-based financing for providers at local health facilities. And many more projects are currently under discussion as the Global Fund explores how results-based financing can become a core component of its overall business model. 

Looking Ahead

One more exciting development: this month, with support from the Bill and Melinda Gates Foundation, and in partnership with both the Global Fund and the Clinton Health Access Initiative, we’re launching a new working group to explore how the Global Fund can best put innovative contracting designs to work across its portfolio—all while striving to maximize the health impact of each dollar and mitigating the attendant risks. The working group will be co-chaired by a high-ranking member of the Global Fund’s secretariat, and we expect that the output will help inform the Fund’s strategy for the next replenishment cycle.

Though the finish line is still far away, the Global Fund deserves kudos for what’s already been done. We’ll continue to check in on movement – but for now we’re happy to see momentum in the right direction.

Authors: Rachel Silverman View Profile

Development blog: Alex Cobham’s Off to the Tax Justice Network

It is with bitter-sweet excitement that we share our news that Alex Cobham is taking up a new post from the beginning of next year as Director of Research at the Tax Justice Network.

This feels like a coming of age. Since we began CGD in Europe in 2011, we’ve focused on three main priorities: development impact bonds, Europe Beyond Aid and Alex’s area: illicit financial flows (IFF). In our work on illicit flows, we’ve been lucky enough to have had a little input to the 2013 G8 process; to have written the zero draft for the Mbeki panel on IFF out of Africa which will report in January 2015; the background paper for the 2014 Tana High Level Forum on Peace and Security in Africa; and a study published by the Copenhagen Consensus on the potential costs and benefits of our proposed new IFF targets for post-2015.  Along the way, Alex Cobham and Andy Sumner proposed a new inequality measure, the Palma; and their current work combines these areas, looking at the possibility of adjusting global income distributions for undeclared (illicit) incomes. And the first major academic paper on the Financial Secrecy Index is forthcoming.

Now Alex is off to take the research and policy agenda forward with the Tax Justice Network, who began, a little over ten years ago, to produce the dangerous ideas that have risen from nowhere to the top of the G8, G20 and OECD agenda; and CGD is bringing together a new team to take the work forward here, with Vijaya Ramachandran and Matt Collin in London, and Washington visiting fellow Peter Reuter.

We’re looking forward to continuing to work together, confident that the net effect will be an expansion of policy-focused research into this important set of issues. And we are seriously considering getting a fußball machine for our new office in the hope that this will entice Alex to fulfil his promise to be a regular visitor.

Authors: Owen Barder View Profile Alex Cobham View Profile
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