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Economic development, institutional analysis, health systems, corruption, evaluation
Bill Savedoff is a senior fellow at the Center for Global Development where he works on issues of aid effectiveness and health policy. His current research focuses on the use of performance payments in aid programs and problems posed by corruption. At the Center, Savedoff played a leading role in the Evaluation Gap Initiative and co-authored Cash on Delivery Aid with Nancy Birdsall. Before joining the Center, Savedoff prepared, coordinated, and advised development projects in Latin America, Africa and Asia for the Inter-American Development Bank and the World Health Organization. As a Senior Partner at Social Insight, Savedoff worked for clients including the National Institutes of Health, Transparency International, and the World Bank. He has published books and articles on labor markets, health, education, water, and housing including “What Should a Country Spend on Health?,” Governing Mandatory Health Insurance, and Diagnosis Corruption.
In a recent trip to the center of the world, I found myself confronting the big development questions in a low-income country with reasonably propitious circumstances. Papua New Guinea (PNG) is larger, richer, and growing faster than I had thought. It will go to the polls this very month to elect a new government. It is also facing all the dilemmas faced by most low-income countries since the 1950s—political fragmentation, resource curses, income inequality, and poor health. Have we learned anything to help it meet those challenges?
After seven decades of research and experience and effort, I’d say we have only partial answers to these questions because the decisive factor—public policy—is fundamentally indeterminate. The political choices being made in PNG bring this into relief. The current government’s policies can be characterized as blatantly disregarding norms of good governance or as pragmatic initiatives to construct a national and civil polity. Which of these characterizations is more accurate will only be revealed by the social and environmental consequences.
Papua New Guinea is at the center of the world
For starters, let me explain why Papua New Guinea (PNG) is the center of the world. One individual I met during my travels told me, “The world looks very different from here … You see a country in transition, strategically located as the bridge between Asia and the Pacific.” Then he convinced me with two maps on his wall much like the following.
Most of us are conditioned to think the world looks like this:
The re-centered map also shows that Papua New Guinea is firmly placed near Asia-Pacific trade routes, with valuable mineral and oil resources demanded by economic giants like China, Japan, Malaysia, the Philippines, and South Korea. PNG’s central location is partly driving a construction boom in Port Moresby as the country prepares to host the Asia-Pacific Economic Cooperation (APEC) meetings in 2018. In addition, PNG benefits from a long coastline (we know that being landlocked is a hindrance to development). It shares a land border with Indonesia, one of Asia’s largest economies and its 260 million people. It is also close to a place with higher wages (more on that below).
PNG is also an international leader on climate change
PNG has also played a central role in one of the world’s most challenging crises: climate change. In 2005, along with Costa Rica, the PNG government led a coalition of rainforest nations to develop a system, known as REDD+, that would compensate them for preserving their rainforests. These proposals eventually led to billion-dollar programs like the Amazon Fund. If global targets of slowing climate change by 2030 are going to be met, it will require sharp reductions in tropical deforestation because deforestation releases large greenhouse gas emissions; because destroying mature forests reduces carbon sequestration; and because policies for preserving tropical forests are among the most cost-effective ways to address global warming (see CGD’s Why Forests? Why Now?).
PNG is growing richer but facing a resource curse
Nevertheless, PNG is a struggling developing country with common problems of small size, concentrated exports, high income inequality, and political fragmentation. Its population is dispersed—85 percent of people live in rural areas. Domestic integration is difficult because of mountainous terrain and a combination of geology and climate that makes road maintenance costly. PNG’s per capita income barely budged from 1960 to 2000 (rising from $1,200 to about $1,900 in 2011 USD), but it experienced a resource boom and grew 60 percent to $3,000 in 2017. It is projected to reach $3,900 sometime in 2030.
PNG’s top exports come from mining (gold and copper) and agriculture (palm oil and coffee). A massive investment by ExxonMobil into extracting natural gas (LNG) contributed to the investment boom, but that project only started producing in 2014—just as global fuel prices began to decline. Economic growth is expected to resume at a modest pace on the base of extracting natural resources and agriculture, however, few expect the economic benefits from these sectors to be widely shared. Some argue that PNG will face a “natural resource curse,” including evidence that resource exports are driving up exchange rates and reducing the profitability of local industry. Others have documented the way promises of jobs and income for local communities can devolve into militarization and exacerbate inter-ethnic conflict. Current policies are keeping the currency overvalued and dependence on imported consumer goods may be one of the motivations that the country (elites?) won’t let the foreign exchange rate adjust more rapidly.
Papua New Guinea has unexploited potential due to the wage cliff
One response to the resource curse would be to diversify exports, but the greatest potential probably lies in reaping the benefits of labor mobility. PNG is on one side of an economic cliff relative to Australia. The Torres Strait islands that are part of Australia lie only 4 km from PNG. I was told you can travel between PNG and Australia’s mainland “in a tinny in half a day.” While that proximity has implications for controlling illicit trade and the spread of infectious disease, it also presents an incredible opportunity for raising incomes in both countries by encouraging properly regulated temporary migration. Average wages in PNG are on the order of $580 USD per month (including the formal sector), while Australian wages are closer to $5,600 per month—a place premium of 10 to 1. No anti-poverty program exists to help Papuans raise their income on the scale that would be possible by an appropriate labor mobility agreement, temporary work program, or skills partnership.
Health challenges, old and new
While PNG is more “central” than you might think, it is still a lower-middle income country with poor health conditions. Life expectancy is only about 60 years on average. Health has improved over the last two decades, but the pace has been too slow for PNG to meet any of the Millennium Development Goals. Infant mortality and maternal mortality remain high at about 47 per 1,000 live births and 215 per 100,000 births, respectively. Measles, diarrhea, and respiratory illnesses are among the top 10 risks for premature death, but increasingly Papuans are dying early from non-communicable diseases (NCDs – see figure below).
The reasons for this slow pace of improvement are multifaceted and complex, but public health policy hasn’t been particularly helpful. Several Papuans told me they remembered community workers who maintained demographic and health records and conducted outreach visits when they were young, but reported that these functions are rarely performed today. A few years ago, a study described 2002 to 2012 as a “lost decade” because, by many measures, the provision of primary health care stagnated or declined during that period. That study documented declines in drug availability, consultations and availability of doctors at front-line facilities, and attributed these changes to poor management and less public funding reaching facilities.
PNG’s future depends on political action
Indeed, public financial management and the politics that drive it are the factors that will make or break PNG’s future. PNG has been independent for only 40 years and has undertaken two major waves of decentralization as part of the process of building a national political order and a viable governing coalition. In his effort to push resources and benefits to local communities, Prime Minister O’Neill created a District Services Improvement Program (DSIP) which gives each parliamentarian the equivalent of US$3 million each year to spend in their district without restrictions. While its critics call the money “slush funds” and deride it as institutionalizing corruption, O’Neill and its defenders argue it is more effective than national policies and strategies for reaching the local level. Spending these funds seems to be hindered by the same difficulties in financial and human resource management that have characterized national and provincial service systems and political favoritism. Ironically, the devolution of spending could also serve to strengthen central authority by investing more power in national parliamentarians.
The sophistication of a political system that mediates among more than 800 languages and cultures cannot be underestimated, yet it still seems to be focusing on short-term tactical gains at the expense of long-term goals. PNG is certainly not unique in this regard. It’s a trait shared by most countries. Nevertheless, PNG is facing a significant transition in the next decade as foreign investment and increased international engagement bring resource benefits along with resource curses.
As I look at what we’ve learned in the field of development, I wonder, what advice we can offer the next government? The benefits of prudent fiscal and monetary policies, rule of law, tough negotiations for revenues from extractive industries, labor mobility agreements, and promoting intensification of agriculture rather than destroying forests sound good, but all rely on constructing a political coalition aimed to serve collective national prosperity and not necessarily particular interests. The benefits that come from investments in education, health, and infrastructure are similarly widespread without necessarily helping incumbents win re-election. Creating and implementing an effective national bureaucracy to serve the people is a daunting challenge. This country deserves the best that the international system can offer from researchers, policy practitioners, and funders to help meet these challenges and get the most out of its opportunities. The “how” embedded in politics is the one thing countries like PNG need to figure out for themselves. The rest of the world cannot answer that conundrum but we should help with the rest.
Thanks to Emily Foecke for her inputs to this blog post, Sarah Allen for her help in putting it together, and to the Australian and PNG officials and individuals who took the time to speak with me during my trip.
Updated 6/22/2017: Estimates of Australian and PNG wages have been corrected. The original post included incorrect estimates of wages and mistakenly reported a place premium of 38 to 1.
In April, I attended a very hopeful event sponsored by the World Bank entitled, “Tobacco Taxation Win-Win for Public Health and Domestic Resources Mobilization.” My optimism was buoyed by seeing people from different ministries, disciplines, and perspectives all recognizing the need to raise tobacco taxes and sharing ideas on how to reduce the death toll from smoking.
Then the bubble burst. I got home and saw a Wall Street Journal article about the increasing profitability of cigarette corporations in the US domestic market—a reminder that, unbelievably, we are still on the defensive against this large, growing, and completely avoidable disaster.
Hooray for cross-sector collaboration
The event was a very welcome demonstration of the World Bank’s growing commitment to help its member countries reduce avoidable deaths from smoking. (I’ve been critical in past blogs and I want to stress my support for their recent progress). At this event, the World Bank showed how it has encouraged collaboration between its health, governance, and finance teams on tobacco. In this way, the World Bank is addressing one of the most common reasons for the world’s failure to act more forcefully against tobacco: fragmentation of responsibilities. Finance Ministries are the ones who can raise tobacco taxes (which are an incredibly cost-effective measure), while Health Ministries are preoccupied with treating smoking-related illnesses, and governance specialists are addressing accountability and democracy with less time to focus on the way cigarette companies undermine public policy. By bringing together the lead managers on health, governance, and finance, the World Bank showed how cross-sector collaboration has helped member countries raise tobacco taxes in Armenia, Colombia, Moldova, Philippines, and Ukraine.
The event also provided a good reality check on the state of debate over tobacco around the world. CGD’s president Masood Ahmed reflected the most prominent issues in his keynote speech (and blog post), particularly on whether tobacco taxes are regressive or lead to smuggling.
Don’t forget that the smoking-related diseases are regressive
Tobacco companies (and indeed many economists) have lobbied against tobacco taxes by arguing that they are regressive, but the presentations at the event revealed the real problem: smoking hazards are regressive. Average consumption of cigarettes is more than twice as high among the poorest quintile than the richest in countries like the Philippines, Thailand, and Uruguay. Researchers at the event presented studies on Chile and Armenia that demonstrated how the poor are more likely than the rich to smoke, to die from smoking, to suffer ill health and high medical costs from smoking (Figure 1), and to impoverish themselves and their children by smoking. Marginal tobacco taxes reverse this process (Figure 2) because the poor are more responsive to tobacco taxes, and quit or reduce consumption in larger numbers than the rich.
Tobacco companies also push the idea that raising tobacco taxes leads to evasion and illicit trade. At the event, people documented the many ways countries have improved tax administration and enforcement to reduce illicit trade. Some also reminded participants that wholesale smuggling requires complicity by the tobacco industry, as demonstrated by huge settlements against tobacco companies who encouraged smuggling in Canada, the UK, and the European Union.
Less remarked upon was the following double standard: somehow, evasion is viewed as a reason to be cautious with tobacco taxes but not as a reason to question other taxes like VAT. In most countries, the share of VAT lost to evasion dwarfs the amount lost through illicit trade of tobacco (see Figure 3). For these other taxes, the public debates focus—appropriately—on improving administration and enforcement. Why not treat tobacco taxes the same way?
In part this is due to the industry’s huge influence on the financial media, spreading stories about runaway smuggling to resist tobacco control measures like plain packaging or higher taxes. These campaigns end up indirectly influencing technical policy documents which urge caution when they should be urging action, including at places like the IMF which is still far too cautious in pushing for higher tobacco taxation in its policy advice.
When someone proposes to raise tobacco taxes, they face a persistent series of doubts that have to be dispelled. Why? The main reason is that the tobacco industry has been feeding public debates with misinformation for decades. And no wonder. They profit immeasurably from selling cigarettes. Prabhat Jha estimates that every $10,000 in profit is associated with one premature death (for a person who loses on average about 10 years of life). And profits are huge.
In 2000, U.S. tobacco companies’ price-to-earnings ratios were about a third of their consumer-staples peers’. Today, they’re roughly 10% higher, according to Morgan Stanley. The S&P 500 Tobacco Index fell 22% between 1998 and 2002. Over the past decade, it’s up 178%, outperforming the broader S&P 500, which climbed 58%.
Cigarette companies are one of the best investments you can find. How is that possible given all the public relations campaigns against tobacco? In the United States, these companies have more than compensated from reduced consumption by raising prices, boosting cigarette revenue to $93.4 billion in 2016—more than Americans spent on soft drinks and beer combined. But profits overseas are doing fine as well. The prevalence of smoking in Indonesia and 25 African countries is rising not only in numbers but as a share of the population. And the gains in other countries where prevalence is declining may be short-lived if cigarettes become more affordable through a combination of inflation (which erodes the impact of specific taxes), rising incomes, sophisticated marketing to get consumers addicted to nicotine, and effective intimidation of governments that try to implement their commitments under the Framework Convention on Tobacco Control.
The bottom line: raising tobacco taxes will save lives. Tripling excise taxes around the world would double prices, reduce consumption by about one-third and avoid 200 million deaths in this century. But raising tobacco taxes won’t necessarily reduce tobacco company profits. And because it is legal to profit from encouraging smoking, we will have to respond to a continuing litany of arguments clouding the debate and stalling action on public health measures that reduce smoking.
Deaths from smoking are an extremely profitable slow-motion disaster. I’m hoping this recent event heralds an energetic campaign to educate staff at the World Bank, the IMF, and Finance Ministries around the world about the magnitude of the epidemic, the manipulation of policy debates, and the deceptions practiced through clever use of double-standards. It is the only way to confront and dispel the tobacco industry’s well-financed smokescreens.
Thanks to Prabhat Jha, Evan Blecher, and Masood Ahmed for feedback, suggestions, and inputs.
Last month I attended a working group set up under the auspices of UHC2030 to look at the problems facing countries that lose external funding for their health programs. For many countries, the bad news is good news—their incomes and capacities have improved so much that donors no longer view them as needing the assistance. But the bad news is still bad news—how are they going to deal with the loss of support?
For me, three questions permeated the presentations and discussions:
Is there anything specific to losing external funding that isn’t already part of a country’s strategy to strengthen its health system?
If coordination among donors is needed, can that be achieved centrally or will it only happen within the countries receiving aid?
What is the right way to gauge a country’s own effort to mobilize resources?
Losing aid means more than losing money
Many of the presentations emphasized that countries which strengthen the institutions and capacities of their health systems will have fewer problems adjusting to smaller inflows of aid. In this regard, it seemed like the agenda for helping countries through such a transition is identical to the agenda for helping countries achieve universal health coverage.
But in other presentations, it became clear that foreign aid involves more than money. Representatives from low- and middle-income countries noted that the attention given to developing proposal for foreign aid agencies is often more detailed and professional (and more exciting) than developing the budget for the finance ministry. They pointed out the value to them of having technical support from outsiders, and the value of political support for addressing the health needs of neglected subpopulations. They also noted the benefits they lose when they can no longer access subsidized commodities or services like bulk purchasing and coordinated procurement. Thus, even when foreign aid might represent a small share of government health spending—less than 2 percent in countries like South Africa, Estonia and Indonesia—the ability to pay for those programs won’t necessarily replace the technical or political support that it provides.
Participants also mentioned another issue: what to do when foreign aid is delivered through mechanisms that a country cannot or will not sustain? In particular, many foreign aid programs contract directly with non-governmental service providers (NGOs). Sometimes this is done to reach people who would not otherwise use public facilities, but sometimes agencies contract NGOs because they are unwilling to directly finance government health systems. When external funding declines, countries may be unable to finance or provide these services because of legal impediments to contracting with NGOs. In other cases, the services may be too expensive or difficult for the government to manage. Whether it creates issues of institutional capacity or financial priority-setting, aid-supported programs pose a challenge to the development of an effective and sustainable government health system unless they consider these transitional problems early.
Coordination happens in country or not at all
The unpredictability of aid can also be a problem for recipients, particularly when donors fail to give advance notice about curtailing programs or arrange for transferring responsibilities in an orderly fashion. While GAVI and the Global Fund were credited with providing public information about the procedures they follow when deciding when a country is ready “to graduate,” bilateral agencies were described as opaque. In this regard, the United States is often a big puzzle. While PEPFAR seems to be paying attention to its exit strategy in South Africa, its performance in other countries was not viewed as favorably.
But the value of coordination really counts at the country level. No matter how much agencies call for coordination at their headquarters, it is the staff who are responsible for implementation at the local level who ultimately do or do not share information and collaborate. The most successful cases reported at the workshop happened in countries where the government led the process of coordination and insisted on a full health sector perspective. In other cases, a major multilateral agency might play this role in the recipient country by regularly convening donors. In still other cases, there was only one major donor left and coordination among donors wasn’t an issue at all. The key, however, seemed to be having a strong push for coordination among donors by people working in the country receiving aid.
Look at absolute spending not just percentages
Money isn’t the only part of managing this transition, but it is still an important one. The irony is that countries can often make a stronger case to receive aid when they are performing poorly than when they perform well. Donors and recipients handle this uncomfortable reality by planning and programming, monitoring and persuading. Donors want to see that countries are committing larger shares of domestic revenues to health as a sign that program will be sustained.
By this measure, things often don’t look very good.
But countries have many other needs that are competing for scarce funds. It is sensible, from the receiving country’s perspective, to accept foreign aid for health and allocate more money to programs they need but which may not be eligible for external funding. So, until foreign aid declines, the share of public spending going to health isn’t a good predictor of what will happen.
As an illustration, Burkina Faso’s share of government spending going to health is only marginally higher than it was in 1995—6.1 percent instead of 5.4 percent—even though foreign aid to health is almost three times higher per capita than it was in 1995 (see table). But the share by itself is misleading to some degree. Over this same period, GDP per person doubled and government revenues tripled. In absolute terms, Burkina Faso increased its public spending on health from about $94 million to $361 million.
Health Spending in Burkina Faso, 1995-2014 (2010 PPP Dollars)
Government health expenditure (share of all government spending)
Total government health expenditure (millions)
External aid to health per capita
Government health expenditure per capita
GDP per capita
Source: World Health Organization National Health Accounts Database. Data downloaded April 6, 2017.
Notes: Except where otherwise noted, figures are in constant 2010 power purchasing power adjusted dollars.
Table estimates government’s health expenditure by subtracting all externally sourced health spending and is therefore underestimates the amount of domestic resources allocated to health.
So over two decades, while foreign agencies increased their annual spending per person from $6.99 to $30.49 and reduced it back to $19.27, Burkina Faso’s government increased domestic health spending per person from $9.36 to $20.35 and sustained it at $20.51. So even if the share of government spending on health declined from 2005 to 2014, is this a country which is showing commitment or not? And what is likely to happen if external support declines? Will these programs be absorbed by the government and financed with domestic revenues or not?
There is no way to predict the answer. The result depends on domestic political decisions and that, in turn, depends on the existence of domestic constituencies to argue for health spending. If public health advocates only argue in terms of increasing the share of the national budget, it forces people to think of that spending in terms of what else must be given up. If, however, health spending is promoted by showing what services and health outcomes can be obtained for the money, it may be more likely to succeed. This may be a better way to make the case for what a country should spend on health.
Transit or transition?
Some countries are going to need external assistance for health for a long time to come. But there are other countries which are “fortunate enough” in terms of development that they face an imminent decline in foreign support. When aid agencies think about cutting programs and when countries plan for their financial future with or without foreign aid, all these issues are on the table: a decline in external funding may mean more than losing money; coordination among donors is more likely if it happens locally and preferably if it is locally led; and judgments regarding commitment must look beyond spending shares to the absolute amounts of money being spent. Ultimately, the success of any of these transitions depends on what a country learns how to do for itself. But, aid agencies have an obligation to make that process more predictable and smoother.
Thanks to Seb Bauhoff and Rachel Silverman for important corrections and useful inputs.
Health technologies can reduce healthcare spending. On average, they don’t. Prominent examples—like the way polio vaccines eliminated the need for iron lungs—seem to drive a common faith in healthcare technology as a tool to “cure” costly health systems. But it actually works the other way around—health systems (policies, institutions, and markets) and human responses to them determine whether these tools will (or won’t) increase spending.
The story of health technology, costs, and spending is not straightforward
The cost saving arguments for health technology look pretty compelling. Cost-effective prevention is an obvious candidate—measles vaccines improve health and eliminate demand for medical consultations. When lower cost health technologies (angioplasty) replace more expensive ones (coronary bypass surgery), you would think that spending should also decline.
But here’s the kicker…
Even when health technologies drive down costs, they might increase spending
Lowering the cost of prevention or treatment means that more people can afford it, that more plans cover it, and that more doctors prescribe it. Depending on how much the cost goes down and how much demand increases, overall spending could either fall … or rise. When lower costs lead to greater utilization and significant health gains, then the increased spending may be worth it. In other cases, increased utilization is of small (or even negative) benefit, and the increased spending is essentially wasted.
Whether technology raises or lowers overall spending is ultimately an empirical question. Studies find that technology generally leads to more spending (and better health). For example, when researchers looked at specific innovations like angioplasty, cataract surgery, and antidepressants, they found that treatment costs fell and utilization increased. What was the net effect? Higher spending and better health. Other studies using cross-country data have estimated that technological change accounts for as much as a quarter of all health spending growth. The size of the net effect is uncertain, but it is almost certainly positive.
What drives health technology?
The net effect of health technology on spending comes down to the way the health system—the interaction of markets, institutions, and public policy—encourages particular kinds of innovation. And here’s where healthcare is strange: the general rules and expectations regarding the power of markets to converge on efficient solutions is weak or even perverse when it comes to healthcare services.
In many markets, technologies converge on standards which increase efficiency. Consider how quickly the market for mobile phones has converged on two dominant operating systems (Android and Apple), how online sales converged on a few dominant e-commerce providers like Amazon and Ali Baba, or VCR standards beat out Betamax.
Healthcare markets don’t seem to work that way. For example, the US healthcare system has more market competition than any other, yet the US seriously lags other countries in the adoption of interoperable electronic health record platforms. In fact, as recently as 2007, less than one-fifth of US hospitals even had electronic data capture for inpatients, at a time when 12 other countries had a rate of over 90 percent. Other countries have moved toward more efficient use of healthcare technologies through a mix of public policies and private sector cooperation—not unlike efforts that went into agreeing on USB connectors or standards for docking with the international space station.
The same issue of Health Affairs that included the study on telehealth, also evaluated several other healthcare delivery innovations. A major health insurance plan effort to improve quality and lower the costs of primary care failed to generate the expected savings. By contrast, a state-wide initiative in Oregon to move Medicaid enrollees into coordinated care programs lowered spending primarily by reducing inpatient utilization. The issue also pointed out where the US is heading, with a projected 20 percent of GDP going to healthcare by 2025 based on projections under current laws. Plans being floated under the new US administration put their faith in market forces to bend this curve—something we’ve never seen happen in healthcare anywhere in the world. By contrast, countries with high infant mortality could make large gains by adopting better technologies—if that is understood to mean more than new drugs or devices and encompass changes in management, organization and financing.
Telehealth is a great innovation for many countries, especially for those with dispersed rural populations. It is bound to be an important part of the health system toolkit for giving more people access to specialized diagnostics and improving patient screening in ways that reduce unnecessary service utilization. However, like all medical technologies, telehealth is just a tool. How this tool affects healthcare spending, health outcomes, and who gets care ultimately depends on the people (and the health system) that use it.
Thanks to Mike Brown and Janeen Madan for comments and feedback.
The workshop I joined, co-hosted by the OECD and the European Commission in Brussels, addressed how results based management is being used to improve public administration in low- and middle-income countries and asked, furthermore, whether this process was influenced by the SDGs.
For me, the participation of representatives from developing countries—such as Togo, Burkina Faso, and Timor Leste—was the most instructive. These officials not only demonstrated their keen interest in measuring performance but explained how they were changing government practices to link their budgets and programming to the measurement of results. Public administration reforms like this are underway all over the world; for example, Delhi just announced such an initiative last week.
Setting goals can be powerful—for good or ill. And goals provide focus—which is good (when it draws attention to real priorities) and bad (when it distracts us from more important things). The workshop showed the better side of goal-setting. It demonstrated the gains in a political and managerial sense from focusing attention on measurable goals within a framework that cautions against tunnel vision. While this discussion can be endless in the abstract, the developing country officials showed what it looks like in practice. In each case, they described how their countries’ commitment to all 17 SDGs was being addressed through pragmatic allocations of their limited time and resources.
Setting goals can also be transformative by providing a common language for negotiation, coordination, and collaboration. At the workshop, country officials described how this worked internally by using results frameworks in their own government planning and budgeting processes. Externally, they expressed the wish that aid agencies would step up and match aid agreements to the results defined in national strategies. Thus, the SDGs provide an opportunity to link domestic agendas to SDGs and then use that linkage as leverage to get cooperation from donors who are publicly committed to the same SDGs. I saw something similar happen in Ethiopia in 2003-2004 when donors met with Ethiopian government officials and the Ethiopians used the MDGs to focus and discipline the aid agencies.
So: the SDGs are almost two years old and—at least in a few countries—they are being used as a tool for framing national strategies and for organizing and focusing the relationship between aid agencies and recipient governments. I’d say that’s a practical win on process…though the jury is still out on impact.
Thanks to Nandita Murukutla for sharing the news from Delhi.
This introductory note is for funders that are considering the Cash on Delivery Aid approach for their operations. It offers answers to the most common questions that staff from government agencies and foundations have posed to the Center about testing this outcomes-focused approach. It provides specific sector examples and offers references to other resources and FAQs on the Center’s website that have more detailed information about designing and implementing Cash on Delivery Aid programs.
In recent years, donors have been making greater use of performance-based payment approaches to fund development programs. The UK Department for International Development, using the broader term being used across the UK government, has added “Payment by Results” (PbR) to the development lexicon. DFID has also stimulated the interest of its partners and contractors in PbR - whereby disbursements are made only after the achievement of agreed results - and it is signaling that it will be increasing its use of PbR programs.
Bond, the UK network of international development NGOs, is investigating what PbR means from an NGO perspective and last week released a report, Payment by Results: What it Means for NGOs . The report makes a good contribution to the literature on results-based approaches because it looks at one subset of PbR approaches – contracts between development agencies and NGO service providers – and offers specific lessons from past experiences and guidelines for NGOs, as well as recommendations for donor agencies.
All Payment by Results programs are not created equal.
Far from it. DFID’s PbR Strategy document, published last summer, acknowledges that there is no international definition of PbR and lots of different ways that programs can be designed within (at least) three broad categories of programs that fall under PbR: results-based financing or RBF (payments from funders or government to service providers), results-based aid or RBA (payments from funders to partner governments), and Development Impact Bonds, DIBs (programs that pay investors for the delivery of results).
It is easy to think of PbR as one kind of aid program, or to confuse the alphabet soup of variations of PbR (RBA, RBF, COD, OBA, and P4R, to name a few). But the underlying theories, key features, lessons, and experiences of one approach can’t always be transferred to another. As Bill Savedoff says here, we often hear about approaches that are likened to COD Aid without paying attention to the difference between paying for activities or for outcomes. In this regard, the Bond paper does a good job of focusing on one particular category of PbR – payments from governments to NGOs for services – and of teasing out the implications of different kinds of payment triggers, shares of funding put “at risk,” and levels of the results chain at which results are defined. A PbR approach applied to NGOs is unlikely to share much in common with PbR programs focused on households or national governments. Similarly, programs in which 100 percent of funding is proportional to outputs are going to be very different from ones in which only a small portion of funding is linked to results. Each approach will have its own challenges, but, in trying to understand how and when PbR should be applied, it is not useful to treat all PbR approaches as though they are the same.
PbR encompasses many theories of change.
The Bond paper discusses how these design choices should affect an NGO’s decision whether to participate in a PbR program. What we have found is that the design features of a PbR program also reveal something else. They show that funders are confused about the theories of change embedded in their PbR programs. In a forthcoming paper, we distinguish four theories of change that are used by funders to justify and design their programs: (1) that the offer of a financial incentive will lead to some behavior change by the recipient; (2) that the performance funding makes results visible in a way that improves management; (3) that the focus on results will improve accountability to constituents or beneficiaries; or (4) that the agreement gives recipients more discretion and autonomy to innovate and adapt their activities. It is our sense that PbR programs are frequently criticized for relying on the financial incentive to change recipient behavior when most are actually designed to work through one of the other three channels.
“Innovation” is not an automatic benefit of PbR.
At CGD, we have tended to focus on the fourth of these theories of change. We argue that giving ownership and responsibility to recipient countries creates space for learning, innovation, and long-term impact. The Bond paper makes a similar point about the value of flexibility in PbR contracts for NGOs … but the contract has to make that flexibility real. Our observation is that if funders pay for results instead of inputs, implementers can turn their attention to problem solving with their local knowledge and modify programs as needed to get the desired results – rather than focusing on satisfying the funder’s reporting requirements or sticking to an inflexible plan. We have taken special interest in two forms of Payment by Results – Cash on Delivery Aid and Development Impact Bonds – which both involve a funder paying for something at the highest possible level of the results chain (typically, a development outcome). This matters because linking funds to the ultimate desired outcome, as opposed to specifically defined activities or even outputs, is what is expected to open up space for flexibility and innovation. (The Peterborough Social Impact Bond in the UK is one example of where we see this happening; the UK government is paying for the outcome of reduced instances of prisoner reoffending.)
But if funders think that providing discretion to the recipient is an important part of their PbR programs, we aren’t seeing much of it. Too often, funders are offering contracts that pay for results while simultaneously specifying the activities and approaches that must be used by the recipient. As the Bond report says, the risk is that implementers are attracted to PbR because of the expectation that it will give them flexibility and then become frustrated when the program’s design precludes this. Our research finds that very few programs are really testing the theory that PbR can improve results by creating greater scope for innovation because their designs continue to constrain recipient discretion. If flexibility, innovation, local ownership, and reduced administrative burdens are essential to the argument for PbR, then you can’t design PbR programs that simply add results payments on top of the requirements and restrictions of an input-funded program.
The point of any new financing approach is to try and get better results than the approaches used today. The question for CGD has always been, what kind of funding mechanism would actually make possible the kind of learning, adaptation, country ownership, accountability, and results focus that we know are important for development? Like the authors of the Bond paper, we believe that PbR “has a place in the portfolio of funding mechanisms available to tackle development problems,” and we think the cautions they present should be heeded and considered. But in terms of building evidence on the effectiveness of such programs, we will have to see PbR programs that actually make space for innovation before we will have experiences to assess and from which to learn.
Climate change will have profound effects on development, poverty, health, and well-being in coming years. Rejuvenated by the recent Paris agreements, efforts to channel the international funding commitments need channels for cost-effective mitigation. The Green Climate Fund (GCF) represents the best current opportunity to address climate change effectively with international funding. Unlike other institutions, the GCF is relatively new and is still developing its policies and procedures.
While global development is about much more than aid, US foreign assistance is, and will remain, one of the most visible tools for US development policy in many countries. The US government spends less than 1 percent of its annual budget — about $23 billion — on nonmilitary foreign assistance across the globe. These programs have consistently come under fire for failing to achieve measurable and sustainable results, ignoring local priorities and contexts, perpetuating bureaucratic inefficiencies and inflexibility, and repeating mistakes over time. A paradigm shift within US aid agencies is needed. In this brief, we outline concrete proposals that would address many of the traditional shortcomings of US foreign aid approaches.
A common objection to results-based programs is that they are somehow more vulnerable to corruption. This paper explains why results-based approaches to foreign aid may be less vulnerable to corruption than traditional approaches which track inputs and activities. The paper highlights corruption costs associated with failing to generate benefits and outlines the conditions under which one approach or another might be preferable. It concludes that results-based programs may be less vulnerable to corruption costs associated with failure because they limit the capacity of dishonest agents to divert funds unless those agents first improve efficiency and outputs.