Strengthening the effectiveness of aid: lessons for donors by World Bank

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Donors can contribute to sound policies and good public sector management through dissemination of research and lessons from country policy experiences and through their policy-based lending. Thorough preparation and well-directed economic and sector work can ensure that adjustment programs are set out appropriately and are well designed. Targeted interventions and safety nets can help alleviate the immediate costs of adjustment, particularly for the poor. Donors can help recipient countries improve their resource allocation by advising about such mechanisms as public expenditure reviews and by strengthening the ability to appraise projects.

Although no single institutional configuration can serve as a universal blueprint, most countries in which aid is significant create a coordination unit that has an overview of all aid activities and can assist both in implementing projects and in ensuring that aid is effectively integrated into the government budget. (For further detail on the creation of effective aid coordination units, see Lister and Stevens 1992, pp. ) Between Donors and Recipients An important part of the difficulty that developing countries face in managing aid comes from the heterogeneity of aid and the institutional and administrative Page 19 processes that go along with it.

In practice, the main criterion for broad sector or program allocations is frequently the preceding year's budget, and cuts or increases are applied across the board. Allocation largely follows historical shares, and there is little systematic evaluation of the broad allocation of public expenditures. Powerful political economy dynamics may be important in determining allocation. Among the many considerations that arise in allocating expenditure, the functional composition of expenditure and the sustainability of expenditure are particularly important.

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