Output-Based Aid: Lessons Learned and Best Practices

Yogita Mumssen, Senior Infrastructure EconomistFinance, Economics and Urban Department

The World Bank 1

Outline

Output-Based Aid (OBA)

• What is OBA

• How Does OBA Fit With Other RBF Approaches

Application Of OBA

• Snapshot of OBA Projects

• Lessons Learned: Benefits and Challenges

• Way Forward

2

What is Output-Based Aid?

• Performance based - shifts risk to service provider

• Bridges gap between cost of service and beneficiary’s ability to pay

• Pro poor - aims to provide basic services to low-income households

3

Mongolia: Access to Telephony and Internet Services

Output-based vs. Input-based

Inputs(such as materials)

Public Finance

Inputs(such as materials)

Service Provider

Service Provider

Commercially Structured

Finance

Outputs(Services for End Users)

Outputs(Services for End Users)OBA reimburses the service provider after the

delivery of outputs.

Government purchases specific “inputs”, builds assets and contracts out or provides services itself

Output-Based ApproachTraditionalApproach

4

OBA in the Context of Development Assistance

DesignDevelopment

Impacts

(Intermediate)

OutcomesOutputs

Build,

Operate

OBA “Outputs” include•Water connection made & service provided•Solar Home System installed & maintained•Medical treatment provided

OBA “Outputs”Independently verified

Inputs

5

OBA Core Concepts

• Targeting

• Accountability

• Innovation and efficiency

• Using incentives to serve the poor

• Output verification & monitoring

• Sustainability

6

Bangladesh: Electrification forPoor Rural Households

How Does OBA Fit with Other RBF Approaches?

Results-based financing

CCT

OBA

PBC

COD

Performancebonuses

7

Snapshot of OBA Projects

• 2002: 32 projects identified for $1.5 billion WBG funding

• 2009: 131 projects identified for $3.5 billion WBG funding

(excluding $2.8billion government financing)– 66 projects identified outside the WBG

– 51 Global Partnership on Output-Based Aid (GPOBA) projects, mainly in water, health

and energy, of US$153 m value (committed)

• Evidence base is increasing (34 projects closed, 78 under

implementation)

• OBA is used in both IDA and IBRD countries

IDA IBRD BLEND

By number of projects 58% 29% 13%

By funding amount 42% 53% 5%8

OBA Portfolio

AFR33%

EAP3%

ECA2%

LCR52%

MENA1%

SAR9%

WBG OBA Portfolio by Region(Total = US$ 3.5 billion)

Education5%

Energy6%

Health24%

Telecom2%

Transport58%

Water & Sanitation

5%

WBG OBA Portfolio by Sector(Total = US$ 3.5 billion)

9

Lessons Learned: Benefits of OBA Approach

• Explicit identification of outputs promotes targeting

• OBA shifts performance risk to providers

• Achieve efficiency gains through competitive processes

• So far $2 of private finance leveraged for $1 of subsidy; varies by sector and region

• “Internalizing monitoring” by paying on outputs

• Encourages careful subsidy design which should contribute to a more sustainable intervention

10

Uganda: Access to Health Services for Poor Households

Lessons Learned: Challenges of OBA Approach

• Access to finance determines how “output-based”

• Capacity to implement and monitor can be an issue

• Demand risk requires more “soft” up-front investment by service provider

• OBA one component of a wider set of policy instruments

• Requires a supportive enabling environment for sustainability

• Supporting internal environment (e.g. systems allow for output-based disbursement)

• Development partner/donor co-ordination

11

Morocco: Connection to Water and Sanitation Services for Low Income Households in Urban Centers

Comparison of Performance: OBA vs. Traditional Projects

0%

10%

20%

30%

40%

50%

60%

70%

80%

Ove

r-ac

hie

ved

Ach

ieve

d

No

t (f

ully

) ac

hie

ved

Un

clea

r

Un

der

ru

n

In B

ud

get

Ove

rru

n

Results Budget

OBA

Non-OBA

12

Moving Forward

• Where it makes sense, scale-up OBA• To do this effectively, need to:

a) address challenges, such as access to finance, capacity for implementation and verification

b) integrate results-based financing within Bank operations, e.g. proposed Results-Based Investment Lending Instrument

• Share lessons across RBF initiatives and work together (e.g. CCT and OBA), and also help inform new RBF initiatives (e.g. Advanced Market Commitment for Energy)

• GPOBA to fund technical assistance for new initiatives and further analysis and evaluation; will provide limited subsidy support for new sub-sectors (e.g. solid waste, irrigation, sanitation)

• Continue monitoring existing portfolio and sharing lessons learned, gathering results from impact evaluations currently underway

13

Thank You

• To order the book:

http://www.worldbank.org/ecommerce/

• For more information about OBA:

http://www.gpoba.org/gpoba/what-is-oba

14

Uganda: Access to Sustainable Water Services for the Poor in Selected Small Towns

Targeting

0%

10%

20%

30%

40%

50%

60%

70%

80%

Geographic Targeting Means Testing Self Selection Targeting No Targeting Identified

OBA One-off Subsidy Portfolio by Disbursement Trigger

Advance10%

Output Delivery67%

Service Delivery23%

Efficiency Gains

Bidding47%

Incumbent provider

23%

Multiple service

providers13%

Other17%

Selection of Service Providers

Energy11%

Health7%

Telecom34%

Transport34%

Water & Sanitation

14%

Use of Competitive Bidding by Sector