A tool to increase effectiveness of development finance

Aaron: There are a number of reasons. The aid landscape is crowded, with a lot of different donors and implementing institutions involved in packaging and spending funding in different countries around the world. These are supposed to work through the national systems of recipient countries, but they don’t always. Which means for recipient countries, simply trying to coordinate incoming aid funds is difficult enough.

This is especially the case for small island developing states and least developed countries, which are highly dependent on aid funds but also have very stretched public sectors. So, just tracking what funds are being committed and how these are being used is difficult and time consuming. And if you can’t track funds easily, you can’t even begin to evaluate what impact they are having.

The second reason is that it usually isn’t straightforward to evaluate whether aid is generating long-term changes for people and the environment, it really requires some analysis. So if a lot of your time and resources are spent trying to work out what finance is going where, there’s no space to even ask important questions about whether aid is effective. For instance the question whether more people are getting access to electricity as a result of all the money spent on the energy sector.

Georgia: One, the collection of data is a challenge. So is the processing of it. It is a huge database with many different factors so while the data is there, it is not easy to get your head around.

Here at SEI, we’ve spent quite some time and energy on this when we were working on a few reports. And we realized that a person sitting in a ministry in a least developed country for instance doesn’t have the time and energy to put into this the same way we were doing it. That’s when the idea of developing this tool came up to enable public sector officials in these countries to very quickly get a picture without having to become data specialists and without having to go and search the internet for where the data exists.

Georgia: There are two main parts of it.

One is an interactive visualisation of development finance commitments and disbursements that shows which countries are providing development finance to whom. The other is detailed profile pages. These allow users to tailor the analysis based on what they’re looking for and get deeper into the data, to look at more information about where finance is coming from, going to and how it is being used.

Aaron: So the user immediately gets the chance to choose what it is they’re interested in. That could be to find out what sector a particular donor has been funding in the last few years. But it is also possible to look at different policy categories where the funders have categorized a certain project as related to for example climate finance, biodiversity finance, desertification or gender. The user can also choose to look at what sectors the aid went to – energy or health for example.

Georgia: The data that we use is the data reported by donor countries and there is a lot of room for improvement in how they do that.

Basically, donors enter all of their financial transactions into the OECD’s creditor reporting system. And when they do that somebody makes a decision on which sector that project was about, or which policy objective the project might have been really relevant for. But people entering that information into the system can make errors – for instance by coding something as climate related that really is not.

Aaron: Another issue can be that some donors group their funding as, for example, funding for the Pacific region, even though they are in fact working with specific countries there. By not specifying individual amounts for individual countries, it makes it much harder for people in countries such as Tuvalu, Samoa or Tonga to understand what money they received and for what.

Aaron: Yes. We are hoping that by making development finance more transparent, donors will have an incentive to improve the way they enter the data.

But even more importantly, the idea is that by bringing transparency to development finance, this finance will become more effective over time. To understand what is happening is a necessary first step to improve effectiveness. From understanding what the money is going to, we can then start correlating with social, environmental or economic indicators to start evaluating whether development finance is playing a positive role in addressing the priorities of developing countries and in producing real change on the ground.