Output-Based Aid (OBA) explained

Given the political commitment by a number of countries to increase aid to developing countries, but at the same time with the mounting concerns over the effectiveness of aid, it is critical that disbursement of funds is linked to the actual delivery of services, or outputs. One way to do this is through Output-Based Aid (OBA), which is a strategy for using explicit performance based funding to deliver basic service - such as water, sanitation, electricity, transport, telecommunications, education, and health care - where policy concerns would justify public funding to complement or replace user fees. Two key features that distinguish OBA disbursements from other forms of publicly funded allocations, is that OBA disbursements are explicit, and they are performance based.

General advantages of OBA for aid or funding allocation 
OBA interventions are explicit because they articulate the following:

  • Why the funding is being provided;
  • Who is receiving the funding;
  • Who is providing the funding; and
  • What is being funded - both the activity and the financial sums involved.

Historically, in both industrial and developing countries, infrastructure service delivery has often involved implicit rather than explicit funding. These implicit funding approaches are poorly targeted and often inefficient.

The OBA approach is performance-based because it strongly links the payment of service providers to the delivery of services, or outputs, which are usually specified in competitive tender documents. This payment on output only, transfers performance risk to the service provider. The provider largely self-finances the service, receiving reimbursement as a one-time payment, which sometimes may be disbursed over a period of one to two years, but usually after the verification of successful delivery. By contrast, in other approaches donors or governments (or both) were pre-funding inputs, so there is commensurately less transfer of performance risk to the service provider.

OBA can help improve the aid effectiveness of donors generally by:

  • Increasing accountability. The transfer of performance risk to the service provider maintains pressure on the provider to deliver the pre-specified outputs;
  • Improving transparency. Explicit recognition and identification of funding flows, specified publicly, reduces the scope for corruption;
  • Increasing value for money. Competitive award of OBA funding, together with the transfer of performance risk to the service provider, can increase the value for money; and
  • Reducing economic distortions. Explicit recognition and identification of funding can help reduce the economic distortions that tend to be introduced.

Further, OBA approaches are a mechanism to implement public-private partnership (PPP): effective use of donor funding and the public budget via OBA-type mechanisms can mobilize private capital and efficiencies for increased service delivery to the poor.

Using OBA in the telecommunications and ICT sector
Many of the telecommunications universal access and service funds (UASFs), beginning with the early examples in Chile and Peru, to the newer funds in Africa (e.g., Uganda and Nigeria) and Asia (e.g., Nepal and Mongolia) have been using OBA mechanisms. Bidders have been asked to bid for funding to deliver, for example, pay phone service sometimes combined with private telephony in rural areas, and Internet service provision, in targeted areas. Winning bidders have signed non-exclusive service agreements (i.e., contracts) covering the specific described target communities targeted under the universal access and service policies.

A further advantage of the OBA competitive approach to funding disbursement is that in virtually every case, the private sector service providers have invested a minimum of twice the amount received as funding in capital investment. Furthermore, following the receipt of the funds, the payment of which is only completed after confirmation that the services are satisfactorily in place, the service providers are obligated to continue providing the service for the duration of their license. 

The Global Partnership on Output Based Aid (GPOBA) organization
The GPOBA was formed in January 2003, by the United Kingdom's Department for International Development (DFID) and the World Bank. It is a multi-donor trust fund administered by the World Bank focusing on the provision of funds for OBA schemes. The goal of GPOBA is to provide increased access to reliable basic infrastructure and social services to the poor in developing countries through the wide use of OBA approaches.

The GPOBA was later joined by The International Finance Corporation (IFC) division of the World Bank Group in June 2006, pledging financial support for projects in the infrastructure, health and education sectors that involve the private sector. The Netherlands Government joined GPOBA in December 2006 and supports the provision of projects primarily in the water and sanitation sector in Sub-Saharan Africa. The Australian Government Overseas Aid Agency (AusAID) joined in February 2007 and the Swedish International Development Cooperation (Sida) in December 2007. 

A total of 65 OBA schemes worldwide have been identified by the GPOBA. The 25 completed projects, in six economic sectors, are listed on the GPOBA website at www.gpoba.org/oba/examples.asp. Of these, 15 case studies are provided and include three telecommunications and ICT cases associated with the early implementation of the countries’ UASFs.  These are as follows:

In 2009, GPOBA published a review of output-based aid in telecommunications that focuses on universal access programs in Latin America.  This review includes consideration of lessons learned and best practices related to OBA schemes related to universal service funds.

GPOBA has also awarded monies for technical assistance and dissemination. GPOBA has to date identified USD 85 million of potential subsidies, for which it has already awarded technical assistance.

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Source: Global Partnership for Output-Based Aid (GPOBA) www.gpoba.org 

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