Donors using Performance Based Allocation (PBA) systems face two difficult issues: how to strengthen incentives to produce and document development results, and how to increase flexibility for fragile states. This paper suggests: 1) implementing short feedback loops to incentivise more attention to results and to monitoring and evaluation; and 2) establishing an additional performance-based fund to allow successful projects to be scaled-up. It proposes a venture-capital model of aid in fragile states – which aims to scale-up successes while accepting that not all projects will be successful. Donors supporting fragile states need to ask not “How much should be allocated?” but “Where can we really add value?”
There is increasing concern that development funds must produce demonstrable results in all countries. However, while needs within fragile states are the greatest, the success rate of projects achieving their goals tends to be lower in such challenging environments. Fragile states therefore achieve poor ratings in the Performance Based Allocation (PBA) system used by International Development Association (IDA) donors (and others). Simply allocating more money to fragile states, however, may risk damaging overall aid effectiveness.
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