The Illogic of Perfomance-Based Aid

Donor-recipient cooperation is increasingly performance based, which entails (1) tying disbursement of funds to measurable results and (2) administering the payments through an autonomous funding agency. The advocates of performance-based aid (PBA) argue that this approach solves two fundamental problems in donor-recipient interaction. First, by leaving policy content to the discretion of the recipient, PBA is conducive to ownership. Second, outsourcing disbursement decisions to an autonomous agency makes donor commitments more credible. In this paper, I challenge both these arguments. I argue that linking aid disbursements to outputs rather than inputs does not solve the fundamental problems with conditionality; in particular, it does not make conditionality more compatible with ownership. Furthermore, an autonomous funding agency may create a lack of flexibility in the donor-recipient relationship that is arguably more damaging than the commitment problem it solves. The case of the Norwegian Climate and Forest Initiative illustrates and informs the argument.