What is "Progress-Based Aid"and why is it "hands-off"?
"Progress-Based Aid"is an idea developed at the Center of Global Development to test whether and how a new form of foreign aid would improve the impact of aid on developing countries. The CGD initiative is a proposal to test this idea in education. Instead of the traditional approach of conditioning aid on specific policies, negotiated action plans, and the purchase of inputs, donors would offer an open contract in which they agree to pay for progress, such as the number of students who complete primary school; any eligible recipient country could then sign on to the contract. The foreign assistance would not be tied to specific purchases or policies, allowing the recipient country to use the funds flexibly and innovatively. The pilot would be accompanied by a research program to evaluate whether it is successful in promoting national achievements in education and whether the "hands-off"approach strengthens local institutions. (For more detail, see "Progress-Based Aid for Education: A Hands-Off Approach.")
What are the targets for progress and who chooses them?
This pilot would contribute to the widely accepted goal of assuring that all children complete good quality primary schooling—a goal which most countries have formally adopted as a part of the Millennium Development Goals. The specifics of the Progress- Based Aid contract would be chosen to be closely aligned with this goal. Any modifications are aimed at assuring that the contract provides appropriate incentives (e.g. focusing on marginal increases rather than existing capacity).
What if a country doesn't meet the goal of universal primary education?
The Progress-Based Aid contract is not an "all-or-nothing"form of assistance. A country would be paid a set amount for each additional student that completes primary schooling, regardless of the level of coverage it reached. If the country failed to increase enrollment, then it would not receive any payment from this form of assistance, though it might continue to get support for educational programs through other sources.
What could countries spend the Progress-Based Aid payment on?
Anything. There would be no restrictions on the use of the funds. This is the essence of the "hands off"nature of the payment. The funds could be used for traditional educational inputs (e.g. textbooks, teacher training, school construction) but the true bottlenecks to making progress might be of a different nature. For example, the funds could be used to construct roads or provide bus transportation if travel costs are a key obstacle for certain students. Alternatively, the funds could be used to improve disbursement procedures if they are hindering educational progress. Ultimately, the Progress-Based Aid payment would provide the flexibility to address whatever particular obstacle is most problematic in the given country.
Which countries would receive progress-based aid?
An open contract for progress-based aid would likely be attractive to countries for which US$100 per student is a significant sum, completion rates are low, the current rate of increase is low, and school cohorts are increasing or large relative to existing school capacity. However, it could also be useful in countries with higher completion rates, oriented toward increasing educational attainment among excluded groups. In large federated countries, progress-based transfers could be used by the national government to encourage states or districts responsible for social programs to make faster progress.
Wouldn't corrupt officials just pocket the money?
Progress-Based Aid would be no more susceptible to unlawful diversion than normal project spending. The key difference is that the Progress-Based Aid funds would only be disbursed if goals have been achieved; whereas normal project spending is disbursed against the purchase of inputs whether or not the project's goals are achieved. The contract could also require that receipts and expenditures related to the progress-based aid payments be published nationally.
Wouldn't the Progress-Based Aid payment encourage countries to push children through the schooling system at the expense of school quality?
The proposed Progress-Based Aid contract would address schooling quality by improving and disseminating information about students' learning outcomes and providing a financial incentives to increase the coverage of competency testing. Donors would agree to finance the direct costs of improving the recipient country's educational information system and introducing a standardized competency test that allows monitoring of learning outcomes over time. To maintain the flexibility of hands-off aid, the recipient country should be able to hire accredited suppliers from anywhere, and charge these costs to the program. The proposed contract would also require countries to administer an eligible standardized competency test to at least 20% of students in the final year of primary school, and publish the results, making it possible for parents, communities or civil society groups to pressure governments for improvements. To expand testing coverage beyond the required 20%, donors would offer a financial incentive of US$20 per student taking the competency test.
Countries apply different definitions of "completion"- what definition would be used to grant the progress-based payment?
A recipient country could use its own definition of primary completion, as long as the definition remained consistent throughout the contract. The audit process would likely need to address this issue of consistency.
What keeps countries, local officials or teachers from inflating achievements to increase their payment?
The recipient country's annual progress report would be audited by an agent from a list of auditors agreed ahead of time by the donor and recipient. The agent would verify whether the country's reported completion and testing numbers are accurate by reviewing administrative reports and records and by conducting independent surveys. The cost of the audit would be paid by the donor.
Wouldn't all the funding just go to better-off areas, where it's easier to make progress?
Some countries have chosen educational expansion plans that seek to maximize the number of students completing primary schooling as fast as possible within their limited resources. In such cases, resources may go to relatively better-off areas where it is easier to make progress. Other countries have chosen educational expansion plans that seek to assure that gains are more widely spread across geographic, gender, income, and ethnic differences, but this may come at the cost of reaching more children. This is a tradeoff that can only be resolved through public debate at a national level. In countries that have chosen to focus on reaching the most children, the Progress-Based Aid contract would pay for each additional student completing primary school regardless of who or where they are. In countries that seek more widely spread educational gains, the Progress-Based Aid contract could include an extra bonus payment for girls, minority or rural children, or other categories to promote equity. Governments only control a fraction of the factors that affect primary completion.
How does Progress-Based Aid account for this? What if a drought or other unforeseen shock causes schooling attainment to drop, for example?
Sharp changes in international interest rates or terms of trade and natural disasters such as droughts often reduce enrollment. The Progress-Based Aid contract contains a contingency for adverse shocks that are beyond the government's control. It offsets the impact of the adverse shock by resetting the baseline to a lower level, proportional to the magnitude of the shock (for details, see item 8 above).
How can the country be expected to make progress if it does not receive payments until it has already achieved some of the goals?
Countries that enter the Progress-Based Aid contract are not starting from a blank slate. They already have their own educational expansion plans financed with domestic or other foreign resources. The Progress-Based Aid funds provide an incentive to make existing technical assistance and educational investments "pay off"in terms of improved outcomes. Once the progress-based aid payments start flowing, these funds can be used to sustain and further accelerate progress.
What about countries where national statistical systems are weak?
As discussed above, the contract could also designate an allowance paid by the donor to which the country could charge the upfront costs of developing testing and statistical systems.
What's the difference between progress-based aid and output-based aid?
Output-based aid programs generally pay for units that are easily measured but not necessarily identical to the true goal of the program. For example, output-based water projects may contract with a water services agency to pay for the number of water connections that are completed but not for the delivery of potable water; an output-based health program might pay for the number of children who are screened for malnutrition, but not for the number of children who reach appropriate weight for height. By contrast, progress-based aid is associated more closely with the program's ultimate aim —in this case, children completing primary school with attention to the quality of schooling. A second difference is that most output-based aid programs contract directly with service providers or require detailed implementation plans and justification of expenditures. Progress-based aid is "hands off,"in the sense that the government only has to demonstrate what it has achieved. It does not have to document to donors how it used the money.
What is the right amount for the payment?
The UN Millennium Project estimates the annual cost of primary schooling in a range of potential recipient countries at between $50 and $100.5 The sample formula above grants countries a one-time $100 per additional child upon completion of primary school above a baseline set five years earlier, implicitly covering the total cost of primary schooling for each additional student completion. However, continuing to expand primary schooling to populations that are harder to reach for economic, geographical or cultural reasons is likely to require more resources per child than an expansion from a lower base. The real issue is whether the payment is large enough to give the government leverage to make the changes needed to achieve this.
Isn't Progress-Based Aid just like Budget Support?
Budget Support programs have similarities with Progress-Based Aid: they are disbursed without being attached to specific expenditures or projects and they are conditional on achieving certain targets. However, the two approaches differ significantly in other respects that have significant implications. Most Budget Support programs are conditional on meeting a number of targets set in national plans or sector strategies and the country is judged to succeed or fail relative to each of these targets. In contrast, Progress-Based Aid for Education is linked to one concrete, specific outcome —primary school completion - and the payments are made for every increment of progress. This avoids "setting the bar too high or too low,"instead creating a clear payoff for each unit of progress. In contrast to Budget Support, Progress-Based Aid also makes it easier to make support predictable: even if political or governance challenges arise in the recipient country, aid is still linked to getting children in school. Progress-based payments would also automatically phase out as the recipient country builds capacity and reaches 100% completion and testing, so spending would end with the achievement of development objectives, rather than at a point determined by the donor. 5 UN Millennium Project, 2004. "Millennium Development Goals Needs Assessments: Country Case Studies of Bangladesh, Cambodia, Ghana, Tanzania and Uganda."
Why would Progress-Based Aid work when so many other approaches have failed?
Other approaches have not completely failed. Many countries are making dramatic improvements in schooling, often at rates that exceed those experienced by today's wealthiest countries. Nevertheless, progress could be faster if a new foreign assistance instrument were available to tackle the constraints on progress that are not addressed by traditional approaches that focus on providing more and better schooling inputs. Progress-Based Aid differs from traditional approaches by being "hands off," which allows the government greater flexibility in how it uses the funds; by paying against progress, it aligns the incentives of the whole government (not just the Education Ministry) more strongly with the ultimate goal of the program; and by focusing on results it creates a powerful incentive to improve information systems and testing that traditional programs have only approached from the supply side.
Wouldn't the country get a windfall when completion rates increase for reasons that have nothing to do with its own actions?
Yes. The only way to avoid this would be to create intrusive and expensive methods for attributing success to specific actions by the government. We are not concerned with such windfalls, however, for two reasons. First, even if the success is not directly attributable to the government's actions, the fact remains that the goal of accelerating educational progress has been attained. Contrast this with the large number of projects that fully disburse their funds without achieving their goals, which seems like a much more wasteful risk. Second, it is unlikely that the government has not contributed in some way to the success, if only through supporting the basic administrative infrastructure necessary for the system to function.
Wouldn't this money just replace money the government would have used for education anyway?
It is impossible to be certain that any foreign assistance is "additional" to recipient government spending. However, Progress-Based Aid can be said to be "additional" in a way that other forms of funding are not—because it only pays for success, it is the only funding that is conditional upon success. All other forms of funding, whether domestic revenues or traditional project finance, even if tied to particular expenditures, may in fact simply relieve the ministry or the government of paying for those particular items.
Wouldn't this money just replace money donors would have disbursed through other aid mechanisms? How can the contract ensure additionality?
Progress-based aid represents a way to spend additional funds that donors have already pledged for poor countries as a part of commitments to "scale up aid."Donors would agree as a part of the contract to treat the progress-based funds as additional, and to abide by all existing commitments. More importantly, however, this issue would only arise if the country were very successful in improving educational outcomes, in which case donors are likely to want to give a country more money, not less, anyway.
Wouldn't there be a big lag between investment and the payoff to the country?
This depends on the appropriate time frame. Most educational programs have to be thinking of 5 to 10-year horizons, and any program aimed at making substantial changes in institutions or behaviors also has to consider long time frames. The lag in payments is likely to make the contract seem unattractive to short-sighted leaders, but very attractive to those who have longer-term visions. This is, then, another attraction of this approach since it is most likely to be taken up by leaders who are most likely to use it well.
How could countries be sure that donors will fulfill the commitment? How could donors ensure the resources will be available when the payment is due?
The contract could require donors to place sufficient funds in escrow to cover anticipated payments in the subsequent two years. Funds would be paid out and replenished upon completion of the audit. Wouldn't rewarding a specific outcome like primary education mean that domestic resources will be diverted to education and away from other priorities (such as AIDS prevention) ? If the payment were large enough to cover the cost of progress—the marginal cost of ensuring an additional child completes primary school—then funding for other priorities would not be affected. With a smaller payment, this is an issue that donors and recipient countries would have to consider seriously. If the approach were successful, donors could potentially offer a range of contracts for the full range of development objectives that they share with developing countries.