Back in 2003, the World Bank and DFID launched the Global Partnership on Output-Based Aid (GPOBA). Output-based aid ties payment to service providers to the actual delivery of services in water, education, ICT, etc. The appeal is obvious—this is the kind of mechanism that helps "get the incentives right", thereby transferring risk to the service provider, increasing efficiency, and enhancing targeting of the poor.
The Partnership was launched with high hopes for improving aid effectiveness, as the GPOBA team explained on the PSD blog a few years ago. But as can happen, new initiatives sometimes founder on the rocks of entrenched aid bureaucracies. What about OBA?
As Figure 2 above indicates, OBA projects show pretty impressive results. The figure is taken from GPOBA's new book, Output-Based Aid: Lessons Learned and Best Practices. It compares the outcome ratings given to all OBA projects in fiscal year 2007 to all projects in OBA sectors in the same year. The report states that "OBA projects score on average half a category higher than traditional projects."
There are of course caveats—speakers at an event to launch the report last week pointed out in particular that (1) providers must be able to access finance in advance until receiving payment; and (2) households must demand the services, e.g. they have to be able to fill out the necessary forms. But I think the results so far make it clear that this approach deserves greater scale. So where do things stand in terms of donor support? Currently:
...OBA is only a small share of the World Bank portfolio. The largest share of OBA projects was 9.1 percent of funding volume in the ICT sector, followed by health (7.1 percent) and transport (3.6 percent).
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Please aid us in extending our knowledge base by completing this output. It seems to end abruptly/prematurely. There is surely a lot more to say. Output-Based Aid is an equivalent to the Private Finance Initiative in the UK. The UK media today is full of discussion about billions of pounds of savings that can potentially be found if government contracts with the private sector are renegotiated. It... seems to be hard enough to "get incentives right" in richer countries, let alone small developing country markets with exchange rate and other risks that the developer may well try to charge a premium for.
Read more Read lessLooking at the comparison of outcome ratings, I am wondering if the modality has produced an incentive to generate "impressive" results.
The early returns on OBA are indeed impressive, especially the figure in Ryan Hahn's post showing how Implementation Completion Reports (ICRs) for OBA projects compare with all Bank operations. We congratulate you on the publication of Output-Based Aid: Lessons Learned and Best Practices. In particular, we applaud the balanced approach taken, showing what has worked well and what has not. We in... the Bank Results-Based Financing (RBF) team agree it is critical that innovative financing approaches be subjected to rigorous analysis, especially process and impact evaluation. In our 8 pilot countries, we hope to learn what works and what does not, and also where and, to the extent possible, why. We invite your readers to visit http://www.rbfhealth.org for other articles on RBF and in particular, recommend a recently posted piece “Paying Primary Health Care Centers for Performance in Rwanda.” This paper is arguably the first rigorous evaluation of pay for performance (P4P) in a low-income setting and is also the first to isolate the impact of P4P incentives from the associated increase in resources, clearly showing the impact in one of the world’s poorest countries.
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