The “aid contract” and its compensation scheme: A case study of the performance of the Ugandan health sector

Abstract

Current literature on aid effectiveness describes increasing use of a more contractual approach to the relationship between donor and recipient government in which a system of rewards and penalties for good and bad performance operates. The purpose of this case study of the Ugandan health sector was to understand the extent to which this approach is influencing processes and effectiveness. This qualitative study used a conceptual framework based on agency theory and ‘realistic evaluation’. Our results showed that the main official mechanism to assess and reward performance established through the Sector Wide Approach lacked objective criteria and was based on an unstructured system of discussions and agreements among donors. The achievement of a satisfactory performance rating was facilitated by the agreeing to undertakings that were under-demanding, vaguely formulated and lacking quantitative benchmarks against which progress could be measured. However, even when poor performance was readily observable, penalties failed to be applied by donors. This was always the case in relation to health sector performance and mostly so in relation to general governance and accountability. Funds continued to be disbursed despite the lack of progress made in achieving targets and undertakings and other evident performance problems (e.g. in the area of governance). A series of explanations of the failure to penalise were put forward by donor representatives in relation to this behaviour including the need to maintain long-term relationships based on trust and not to undermine health sector performance by withdrawing aid. Thus there are likely to be incentives to disburse funds and report success, irrespective of the realities of aid programmes in the context of large foreign aid volumes associated with increased political visibility of aid in donor countries.

Introduction

The volume of International Development Assistance (IDA) to the health sector has increased from $5.6 billion in 1990 to $21.8 billion in 2007 (Ravishankar et al., 2009). Alongside increases in quantity, there has been greater attention given to the quality of aid (Adam and Gunning, 2002, Hecht and Shah, 2006, chap. 21; de Renzio, 2006). This shift is mirrored in changes in mechanisms and approaches of IDA. In the past, projects were used to channel aid resources to a specific sector and/or programme of interest. In the 1990s and 2000s donors introduced the new aid modalities of General Budget Support (GBS) where funds are channelled to recipient government budgets (often earmarked for poverty alleviation strategies) and sector support or Sector Wide Approach (SWAp) where funds are pooled to support a sector.

Despite a growing interest in contractual approaches to aid (Barder and Birdsall, 2006, Hecht and Shah, 2006), no study in the health sector has documented how the delivery of aid through this mechanism operates at country level. The study reported by this paper aimed to make an in-depth examination of this issue using a case study of the Ugandan SWAp between 2002 and 2005. This paper investigates the nature of the performance appraisal system; how it operated; and how donors explained their responses to the way it operated.