Poverty Reduction

Development Finance

Many countries need to supplement the resources they can generate domestically with aid from other countries in order to invest in growth and sustainable human development. UNDP supports efforts to scale up aid in developing countries to support progress towards the MDGs. Of more importance, aid needs to be made to work better. Making aid more effective is a shared responsibility between the donor and recipient countries. The focus of UNDP work in this area is on support to governments in improving the national aid management architecture, ensuring national leadership of aid coordination and supporting monitoring arrangements that include private sector and civil society.

Scaling up aid

The 2002 Monterrey Consensus on Financing for Development covers several types of resources that could be used to support investment in development. First and foremost are the domestic resources that countries already have – the skills and knowledge of their people, their natural resources, their economic activity and the taxes this generates (see UNDP's work on domestic resource mobilization).

In order to address the scale of the challenge presented in the MDGs however, the poorest countries will need to supplement their domestic resources with financing from other countries, including through aid.

In 2005 many donor countries – in the EU and G8 – committed to double the amount of money they give in aid by 2010. Together with moves to make this aid more predictable, the additional aid is intended to allow countries to make sustained investments in infrastructure, health and education – abolishing user fees where necessary.

UNDP is actively engaged in the debate on how to effectively scale up aid, while mitigating any adverse consequences that may arise. For example, some donors and countries are concerned that high levels of aid can make governments more responsive to donors and less responsive to their populations, and also make the country less competitive through the phenomenon of ‘Dutch Disease’. According to many, the negative consequences of scaling up aid are important but can be managed. They should not prevent countries from investing what they need to reach basic health goals, universal education, and infrastructure needs. (See The Macroeconomics of Aid, UNDP, January 2006 for further discussion on this). UNDP also supports further work on innovative sources of finance for development.

Improving aid effectiveness

By working with national governments to address key capacity constraints, UNDP aims to enable countries to articulate and implement nationally defined MDG-based development strategies. By bringing donors together to discuss their aid programmes, often at the request of the government, UNDP facilitates dialogue on aid coordination in programme countries and supports alignment of donor assistance with country development priorities contained in the strategies. For example, the Development Management and Aid Coordination program in UNDP Tanzania co-facilitates the work of the Development Partners Group (DPG) for greater harmonization and increased effectiveness; and facilitates the work of the Independent Monitoring Group (IMG) to monitor aid effectiveness and the partnership relationship between Government and its bilateral and multilateral partners.

UNDP support for developing national capacity, especially to aid coordination units in Ministries of Finance and Planning, has often been key in helping ensure a shift from aid being driven by the donor agenda to it becoming an empowering policy tool for the 'recipients' of aid.

UNDP also has a role in making Official Development Assistance flows transparent for the Government and other stakeholders, as a first step towards the ownership of aid management. The collection, processing and dissemination of information to monitor development cooperation and aid are also part of this focus. UNDP’s Devaid.org website provides country experiences and tools available to support aid coordination and management.

UNDP is actively involved in the global dialogue on aid effectiveness, supporting the implementation of the Paris Declaration by fostering broad-based donor/recipient governments and civil society dialogue for aid alignment and accountability, reaching out to non-OECD members and emerging donors and creating partnerships for more effective aid.

Key Initiatives

Devaid.org
UNDP established the Devaid.org website to support recent efforts and initiatives to enhance the quality of aid and to increase its impact, including through support for the Paris Declaration on Aid Effectiveness. It is also intended to serve practitioners working on aid effectiveness. Its focus is on knowledge sharing, learning and cross-country fertilisation of experiences, concepts and activities to support the effectiveness of aid for development through an interactive format. The website includes aid management tools, country case studies and related news and events.

Resources

Using The Country-Based Development Model To Scale Up For Results: An Agenda For Action - The World Bank and UNDP established a Joint Task Force in March 2006 to identify a shared approach to scaling-up at the country level. The intention was to build on the work already undertaken by the World Bank and OECD-DAC while addressing the World Summit Outcome Document’s call for MDG-based national development strategies. This paper was prepared for the OECD/DAC World Bank Third Meeting on Scaling Up for Results, 27 June 2006 in Paris, as the first output of this Task Force.

The Macroeconomics of Aid, UNDP, January 2006