Aid coordination has been the subject of discussion and even controversy since the international aid effort began. It may imply general discussion in an international forum, or periodic meetings of donors and recipients to address development constraints and policies of recipients and the donors' assistance plans, or even narrow and concrete action by several donors and a recipient with respect to a specific project or to sector assistance activities.
In many developing countries, donors finance a large proportion on the investment budget – in parts of Sub-Saharan Africa this may be 100%. Their effect on the allocation of spending may be positive. In addition to providing concessional funds, some donors carry out relatively comprehensive economic evaluation and demand thorough record keeping. They may have higher skills than the recipients in economic analysis and in project appraisal and monitoring and they can influence not only the selection of individual projects, but borrowers' standards more generally. And in the industrialized world they can help to educate governments, citizens and the private sector about development problems and the urgent need for continued international capital transfers. However, there are possible drawbacks. If, as in many cases, each sector ministry deals directly with donors, then policymaking is made more complex. Not only can there be duplication of effort but central control of the budget can be impeded. Lack of a central viewpoint makes intersectoral tradeoffs difficult to judge and overall spending hard to contain. The extreme case is an investment programme comprising a list of projects that donors choose to fund, without any centralized consideration of the economic merits of each project or the balance between them. Pressure from their own organizations to lend and disburse may lead donor representatives to seek special treatment, such as separating counterpart funds from the budget or exempting projects from normal procedural checks. Furthermore, the restrictions donors sometimes place on project funding can lead to greater cost, increased domestic budgetary pressures or reduced effectiveness. It sometimes arises that aid is tied to purchase of goods and services from the donor country at a cost higher than it would be under competitive bidding. Again, donors often refuse to fund current spending on operation and maintenance so that budgetary pressures mount later, because countries must provide not only matching capital funds but also continued recurrent funding; also the underlying bias against spending on operation and maintenance is further reinforced. These problems can be tackled through better coordination of foreign aid by borrower governments. Donor projects and financing would then be incorporated into the central budget, and donor projects be subject to at least the same standards of central review as domestically financed ones.
In 1961, major aid donors at the international level established the OECD Development Assistance Committee (DAC). The DAC has played a central role in (a) the collection, analysis, and dissemination of information on assistance programmes and policies, and (b) the analysis and discussion of development issues among its members and the formulation of general principles of donor assistance. However, it has not generally dealt with the analysis of the development constraints of individual countries or sought to coordinate donor programmes in specific countries.
The World Bank sponsors aid groups, often called consultative groups or consortia, which are a major mechanism for coordinating aid to particular countries. The first aid group was established in 1958 for India. Altogether thirty countries have had one or more of these aid group meetings and the majority are still active. They normally meet meet at one- to two-year intervals, although less frequently for some countries. Such meetings typically review the World Bank's economic analysis of the country, the recipient's development plan and donors' current and prospective assistance programmes. This may be the only real opportunity to bring donors and recipients together to explore the country's development problems and donors' programmes. World Bank consultative groups in sub-Saharan Africa are paying special attention to sectoral problems and to improving their coordination within the countries concerned, but significant barriers remain. The non-developmental motives which still play a major role in aid programmes sometimes stand in the way of the efforts of multilateral institutions to promote a policy dialogue with aid recipients. The World Bank is developing models of on-the-spot coordination in some African countries, in association with the recipients, the UNDP, the African Development Bank and interested bilateral donors.
The Round Tables of the United Nations Development Programme (UNDP) provide another means for coordination. These assumed increased importance after the 1981 UN Conference on the Least Developed Countries, when many of the poorest countries did not have formal aid coordination groups and saw the Round Tables as a means of focusing donor attention on their individual development problems; most of these countries have now had a Round Table or World Bank lead aid group meeting. Other coordinating groups operating at international, regional and sectoral levels include the Club du Sahel, the Central America Consultative Group, a coordination group for Arab funds, and the Consultative Group on International Agricultural Research (CGIAR). Ad hoc conferences, such as the UN Conference on Renewable Energy and the UN Conference on Population, have also provided opportunities to discuss development issues and improve coordination. In order to complement broader efforts with closer on-the-spot coordination, aid group meetings of donors and recipients agreed to establish or strengthen parallel groups that would meet more frequently in the recipient countries and deal mainly with operational issues.
The General Assembly has recently called for more integrated and coordinated programming of UN system cooperation, in which programming processes would be based on an overall national programme framework for operational activities for development to be prepared by the recipient government. The government's programme framework would set out the cooperation requirements for the UN system, in accordance with the government's development plans and priorities. This is complemented by a framework for cooperation and coordination among UN organizations providing multilateral assistance for development through a mechanism of country strategy notes.
Aid coordination should foster links and coherence between interventions at the macro and micro levels. Coordination among donors and between donors and recipients avoids duplication and proliferation of projects, allows the sharing of information and experience and increases the overall impact of aid efforts. Yet coordination is often superficial or non-existent, and many low-income countries have no machinery to coordinate aid flows and programmes. It is of prime importance to build up institutional and management capacities of recipient governments to coordinate and implement assistance programmes and to bring a greater number of developing countries under the aid coordination process. Donors and recipients must turn their attention to development strategies formulated with an appropriate emphasis on poverty alleviation and a time-frame that goes beyond structural adjustment; and aid coordination must be made a primary responsibility of the recipient rather than a donor-driven process.
Strengthened coordination must not give rise to more cumbersome procedures and slower delivery of assistance.