Partnerships for Poverty Reduction:Rethinking Conditionality

A UK policy paper March 2005

The United Kingdom recently released a policy paper setting out its position on aid conditionality. UK policy paper produced jointly by the Department for International Development, HM Treasury and the Foreign and Commonwealth Office, to form partnership for poverty reduction, elaborates on its clear responsibility to parliament and people to ensure that aid is not used corruptly and is well spent for the purpose for which it was intended. The paper stesses that the right kind of partnership must have reducing poverty at its heart, alongside upholding human rights and strong financial management. In this new approach, and the significance of good governance and social policies, agreed benchmarks for measuring progress on the reduction of poverty, rather than policy conditions set by donors, will be the basis for both partners to be accountable to their citizens. UK is the first major donor to publicly state its re-assessment of conditionality, and to encourage other donors to do the same. The policy has yet to be effected, and this may require significant changes to the legislative environment.

The policy is based on the fact that developing countries must be able to determine their own policies for meeting the Millennium Development Goals (MDGs). A shared committment to three objectives: reducing poverty, respecting human rights and other international obligations, and strengtheing financial mangement and accountability, by avoiding its misuse, is placed at the forefront of the future partnership with actors and governments of developing countries. The mutualy agreed benchmarks to assess progress should, where possible, be drawn from national poverty reduction plans. In deciding how to allocate aid between countries, the UK will take account of the extent of poverty in a country, and of its ability to use aid effectively (as evidenced by the expected impact of its poverty reduction programme and its commitment to sound financial management and accountability standards), and where appropriate, will also work with civil society and the private sector.

DFID will support nationally owned poverty reduction plans and will not make its aid conditional on specific policy decisions or attempt to impose specific policy choices such as privatisation or trade liberalisation. Both donor and developing countries should be accountable, to their citizens and to the wider global community, for showing how aid is improving the quality of life for poor people. The UK will seek to make aid more predictable to be integrated as part of the user country budget plan in long term. UK will continue to press World Bank and IMF to monitor and streamline their combined terms and conditions. In giving aid it will also take account of countries’ commitment to universal human rights standards and other international obligations. The reduction of aid will only be considered when unjustifiable rise in military spending, or a substantial deviation from the agreed poverty reduction programme occur or there is significant breakdown in partner government financial management and accountability known as ‘fiduciary conditionality’.

Good policy matters for development. Macroeconomic stability and growth are essential for lasting poverty reduction. But the policies needed for poverty reduction and long term development are much broader, and encompass the social, cultural, economic, civil and political rights of all men, women and children. They also include governance issues, environmental concerns and social exclusion.We will support developing countries to decide for themselves what policies to include in their poverty reduction plans. Donors have broadened the focus of aid conditions from macroeconomic policies to include also conditions linked to political and institutional change, as well as social and environmental policy. Such conditions have included commitments by the partner country to tackle corruption or establish more transparent and inclusive systems of government. However, developing countries sometimes agreed conditions in areas of reform even though they were unconvinced of the case for change. Nonetheless, conditionality which attempts to ‘buy’ reform from an unwilling partner has rarely worked.

in the 1980s and 1990s donors pushed for the introduction of reforms such as structural adjustment, privatisation and trade reforms, regardless of whether these were in countries’ best interests. This led to the governments becoming more accountable to donors than to their own people. Evidence on the social impact of privatisation policies in the area of public services has been the subject of much debate, and therefore the use of conditionality. On trade there were concerns that aid conditions have constrained poor countries from incorporating on appropriately sequenced trade measures, and that conditions requiring unilateral trade liberalisation affect the ability of poor countries to negotiate effectively in multilateral discussions.

In the last few years, donors have recognised the insufficient analysis of the impact and started supporting Poverty and Social Impact Analysis (PSIA) of major policy changes. This analysis anticipates and assesses the intended and unintended consequences of policy changes for the welfare of poor men and women and vulnerable groups, such as ethnic minorities, disabled people, older people and children. It covers both income and non-income measures of welfare. So far over 100 assessments have been completed or are underway. But PSIA needs to be implemented much more consistently, and be more widely owned within developing countries. The UK is working with partners to encourage a country-led approach, involving all stakeholders at each stage of selection, design and implementation, and including social and political analysis as well as economic analysis.

Commitment to poverty reduction
The International Development Act, which came into force in 2002, makes the elimination of poverty the primary purpose of UK development assistance. DFID provides aid to further sustainable development and improve the welfare of people
outside the UK. The UK is increasingly interested in assessing whether the programme is producing the desired poverty outcomes, rather than whether the government is implementing a particular policy measure.


Commitment to human rights and other
international obligations

States have a shared responsibility to ensure that human rights are upheld, that violations do not take place, and that governments respect their international obligations. Donors have a particular responsibility, as part of their accountability to parliament and the public, to ensure that their development assistance is not used in ways that abuse human rights. The human rights situation should be assessed on the basis of the partner country’s own international human
rights obligations. The country’s position in relation to other international obligations, for instance on peace and security is also under consideration.

Commitment to strengthening financial management
and accountability

The UK elaborates that improving performance in public financial management and accountability is critical for building the capability of states to deliver basic services and to progress towards the Millennium Development Goals. Partner governments, like donors, are also accountable to their electorates for the propriety of public finances. DFID is accountable to Parliament for how UK taxpayers’ funds are used.


Commitment to key principles

In its aid relationships, the UK will be guided by five principles:
• developing country ownership;
• participatory and evidence-based policy making;
• predictability;
• harmonisation; and
• transparency and accountability.


In deciding how to allocate aid between countries, DFID will take account both of the extent of poverty in a country, and of its ability to use aid effectively (as evidenced by the expected impact of its poverty reduction programme and its commitment to sound financial management and accountability standards). Poor political governance, such as widespread human rights violations, can hasten a country’s decline towards instability. Instead of withdrawing from these countries, the UK is committed to finding ways of delivering targeted, selective aid focusing on improving governance and delivering services. In the fragile states UK will work with the governments as far as possible apply the principles set out in this paper. Partnerships can be built around simple planning instruments for prioritisation and sequencing of reforms. In countries where the government is weak or uninterested in development, UK will closely monitor the situation to identify opportunities for political dialogue. Wherever possible, it will remain involved through partners other than the government, for example supporting NGOs in the provision of services. Apart from decisions on aid, well-targeted sanctions may also have some impact on the pace of reform. Measures such as asset freezing and travel bans which target those individuals most likely to be able to influence a positive change on the ground can often help limit any wider negative impact on the population.

Donors need to take a back seat, giving more space to countries to draw up their own plans for poverty reduction. To make this happen, we need to find more effective ways to strengthen countries’ policy expertise. The relaxing of aid conditionality is likely to be welcomed by developing countries, but the challenge of getting other donors on board remains.

1. The policy paper can be viewed at http://www.dfid.gov.uk/pubs/files/conditionality.pdf
2. Also See http://awid.org/go.php?stid=1459.