Results-Based Aid

Overview

Results-based aid is a form of Payment by Results and generally refers to the linking of official development assistance (from bilateral or multilateral development agencies to developing country governments) to verifiable results in the form of outcomes at the national level. For example, a results-based aid agreement might have payments linked to performance against one or more outcome indicators, or the successful implementation of a government program. Possible outcomes might include the number of people with a defined improvement in access to energy.

Results-based aid is distinct from Results-based financing which applies at a level below and will be concerned with outputs (such as electricity connections) rather than outcomes (such as number of households using electricity).

Definition

Results-based aid can be characecterized by the following principles:

1. Disbursement of funds is contingent on the delivery of pre-determined results in the form of national-level outcomes.
2. There is recipient discretion over how results are achieved.
3. Independent verification acts as the trigger for disbursement.

Examples

Results-based aid is a very new concept in the energy sector, with even less implementation experience than with Results-based financing, which applies at a level below. Nevertheless, there is strong and growing interest in results-based aid instruments in two areas: i) bilateral development assistance; ii) under the area of climate finance.

Examples of results-based aid instruments include:

• Cash-on-Delivery Aid (COD Aid), a modality proposed by the Center for Global Development whereby donors would pay for development outcomes against (ideally) a single indicator, with minimal involvement in how the target is met;
• Energy+ partnership, which is proposing a coordinated adoption of results-based funding at both the outcome and output level in the delivery of partner programs;
• Program-for-Results (P4R), a lending instrument launched by the World Bank in 2012, which opens up new possibilities for results-based disbursements to programs in the energy sector;
• Certain forms of climate finance, such as payments under the UN program for Reducing Emissions from Deforestation and Forest Degradation (REDD+).

There is some development experience with results-based aid, such as variable or performance-related tranche payments under Development Policy Loans or the Immunization Services Support program of the GAVI Alliance, but energy sector experience is very limited.

Limitations

Criticisms of results-based aid include the onus on the recipient country government to pre-finance the delivery of outcomes, the lack of donor control over the use of disbursed funds (particularly under the COD Aid approach), the risk of incentivizing the delivery of a single outcome at the expense of others (and the associated risk of perverse outcomes), and a lack of data in some sectors.