Toleafoa Alfred Schuster
Development and Strategic Engagement Advisor in the Pacific
Development Co-operation Report 2023
Debating the Aid System
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Development Co-operation Report
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23. In focus: Applying effectiveness principles in financing for the Pacific Islands
Abstract
Pacific Island countries face significant challenges accessing much-needed climate finance. The Forum Compact, the 2009 regional framework aimed at improving aid effectiveness, offers lessons and good practices that can be built upon to develop more robust country systems and strong partnerships to address climate change. Regional accountability frameworks, such as the Forum Compact and the 2013 Pacific Climate Change Finance Assessment Framework, should be leveraged to support Pacific Island countries in addressing climate change and strengthening ownership, alignment, harmonisation, management for results, mutual accountability and other aid effectiveness principles.
The author would like to acknowledge and thank Katharina Gugerell for her help with this contribution.
Key messages
Regional accountability frameworks such as the Forum Compact have proven their worth as vehicles for mutual accountability and more effective approaches to ensuring impactful development in the Pacific. They should serve as a source of lessons learnt and best practices.
While Pacific Island countries’ public finance systems have improved since the establishment of the Forum Compact, they are often not sufficiently robust to deal with the requirements of climate funds.
There is still little correlation between the quality of national systems and the likelihood of development partners using them.
Flexible budget support and harmonised donor assessments are important methods to increase the use of country systems.
The concerns of Pacific Island countries (PICs) around their access to climate finance hark back to policy debates around the effectiveness of development co-operation during the first decade of the Cairns Compact for Strengthening Development Coordination in the Pacific, known as the Forum Compact.1 This framework for meaningful development provided Pacific Island governments with a strong political, strategic and regional platform that facilitated an aid reform agenda. The aim of the Forum Compact was to renew commitment to catalysing the region’s economic and development performance, with the main objective of ensuring more effective co-ordination of development resources and actors.
Since its adoption in 2009, the Forum Compact has served as the political framework to tackle several long-standing barriers to development in the Pacific. It localised international commitments enshrined in the Paris Declaration, the Accra Agenda for Action and the Busan Partnership. In addition, the Compact principles were meant to bring about a change in the behaviour of all relevant development actors and to address power imbalances experienced by partner countries of the Pacific. While the Forum Compact has lost momentum in recent years, PICs and their development partners can apply lessons from its successes and weaknesses when tackling similar effectiveness challenges with climate finance.
Added value through the pioneering of a regional accountability framework
The Forum Compact offers valuable lessons, good practices and a model of regional co-ordination that can help PICs to increase aid effectiveness and enhance their access to vital climate and development finance. Among its key priorities were the reduction of aid fragmentation, more efficient aid administration, the improvement of aid effectiveness measures such as country partner systems, multi‑year and predictable funding commitments, pooled funding, collaborative analytical work, and the delegation of aid delivery to lead donors (Forum Compact, 2017[1]).
Under the Forum Compact, national approaches to development were paired with regional approaches to address common challenges. More recently, PICs have been collectively working to tackle the impacts of climate change. Fiji’s presidency of the 2017 United Nations (UN) Climate Change Conference, or COP23, strengthened these efforts, as has the Samoa Pathway, an internationally agreed programme of action for small island developing states for sustainable and equitable economic growth. The Forum Compact has proven its value in identifying and disseminating good practices, its contribution to cross‑country learning, and as a regional framework for monitoring and associated advocacy – elements that are worth preserving in the future regional agenda (Forum Compact, 2017[2]). In addition, peer reviews conducted under the Forum Compact have been particularly useful for implementing the Sustainable Development Goals, evaluating development effectiveness and supporting climate finance reviews.
Country systems’ shortcomings hinder access to climate funds
Access to vital climate funds often entails lengthy and complex accreditation processes, for instance, making it essential for PICs to have robust public financial management systems in place.
Both the Forum Compact and, more recently, climate finance channels rely heavily on the effectiveness of public financial management systems. In recognition of the importance of effective country systems, public financial management reform is a permanent item on the agenda of Pacific Islands Forum Economic Ministers Meetings. On average, the scores of countries that have had repeated public expenditure and financial accountability assessments have improved somewhat over the years. However, issues remain, including those that were flagged as problematic when the Forum Compact was established: budgets with weak links to policy and medium-term planning; organisational separation of planning, budgeting and aid management; separation of recurrent and development budgets; and weak control of payroll, inadequate procurement practices and incomplete accounting. Not all countries face these challenges, though their persistence in most countries suggests that decision making is still based on vested interests and that institutional weaknesses continue to erode public finance systems (Forum Compact, 2017[1]). There are important ramifications. Access to vital climate funds often entails lengthy and complex accreditation processes, for instance, making it essential for PICs to have robust public financial management systems in place. While climate funds have tried to streamline the process, PICs continue to struggle to access such financing because the reforms required stretch PICs’ already-thin capacities (Fouad et al., 2021[3]).
Low use of country systems by development co-operation partners
Countries in the Pacific have adopted innovative national plans and gradually improved their central systems, resulting in greater predictability, alignment and harmonisation of aid. Yet, peer reviews find that there is little correlation between the quality of a national system and the likelihood that a development partner will use them. Decisions to use country systems largely depend on sector practice, the overall level of trust between the PIC government and the development co-operation provider, and the provider’s degree of risk tolerance. In the 2016 monitoring round of the Global Partnership for Effective Development Co-operation, some PICs reported frequent use of national systems. But the high use of country systems by some development partners reflects historic practice rather than a vote of confidence in national systems. The use of country systems by development partners in other PICs remains low. Only in Samoa was the rate of use of country systems by development partners above 80%. The use of national procurement systems in PICs also remains low overall, reflecting the fact that this is generally an area of recurring concern in development partners’ risk management strategies (Forum Compact, 2017[1]). The improvement and increased use of strong country systems are crucial to successfully deliver programmes, particularly related to climate change adaptation.
Ways forward to improve access to climate finance to achieve climate goals in the Pacific
The Pacific Roadmap for Sustainable Development and the momentum to increase climate finance provide a fresh opportunity to consolidate lesson learning over the seven years of the Forum Compact. Integrating these lessons into new efforts to attract and effectively use climate finance in the region can create efficiencies.
Using country systems more effectively to better channel climate finance
Some development partners are increasingly providing flexible budget support in a co-ordinated way to support Pacific countries’ own reform efforts. Such mechanisms now figure prominently in five key partners’2 engagement with almost half of the Pacific Islands Forum countries, a significant improvement over 2009 when their use was very limited. Still, further gains can be made. There is a notable demand from several Pacific governments for partners to use national systems more extensively. Some partners remain focused on bilateral, project-based financing modalities and national interest criteria when allocating finance, and climate financing remains complex to access and focused on specific investments. Progress between governments and individual partners on these issues has to be led at the country level. In particular, countries should share best practices to ensure all partners know how other stakeholders are engaging.
PICs also emphasise that an important way forward would be to better harmonise partners’ procurement, contracting, assessment, monitoring and evaluation, and reporting systems, particularly where there are gaps in countries’ own systems. PICs are frequently subjected to a range of separate assessments of country systems by donors. A 2013 study, for example, noted that in three of the smaller administrations, an estimated 150-200 active projects and grants were underway and most came with their own reporting formats, timelines and management requirements (Pacific Islands Forum, 2013[4]). To lessen the administrative burden on small administrations and improve the way development partners use country systems, it is important to facilitate and adopt joint measures to recognise the results and reform recommendations from other donors' assessments; build formalised working arrangements to harmonise procurement and reporting procedures; and complement technical assistance and the application of donor systems only in areas where there are acknowledged gaps.
Improving co-ordination of climate finance flows to Pacific Island countries
The volume of development financing to the Pacific has increased in tandem with international commitments relative to climate change adaptation. The creation of the Green Climate Fund and the commitments made through the Adaptation Fund promised to make it easier for Pacific countries to access climate financing and deliver on their adaptation priorities. To improve and advance more co-ordinated efforts around the management and delivery of climate financing, in 2013, Pacific governments adopted the Pacific Climate Change Finance Assessment Framework (Pacific Islands Forum, 2013[5]), building as well on existing regional and international frameworks, including the UN Development Programme-led Climate Public Expenditure and Institutional Review, the public expenditure and financial accountability framework, public financial management road maps, and the Forum Compact. The Pacific Islands Climate Change Program, which aims to help Pacific Island countries implement the UN Framework Convention on Climate Change, aligns in many ways with the Forum Compact, particularly the programme’s focus on development effectiveness and the link between climate change and broader development effectiveness efforts such as ownership, alignment, harmonisation, management for results and mutual accountability.
Maintaining a focus on development effectiveness
The Pacific Climate Change Finance Assessment Framework can build on and learn from important Pacific regional instruments, in particular the Forum Compact. It reflects the emerging regional focus on better managing and delivering development finance, ensuring effective development co‑operation is the domain and responsibility of Pacific governments and that the primary role of development financiers is to provide and ensure ease of access to financial resources and ensure alignment and ownership of accepted effectiveness measures. Yet, global and regional development dynamics have evolved since 2009. As a result, how Pacific countries work together must continuously evolve if they are to progress on development goals, particularly in terms of addressing climate change.
The challenge is to shift the ambition of the Forum Compact principles back to the practice of partnership arrangements, in particular development and climate financing. Evidence shows that the Forum Compact is a solid foundation for PICs to take the lead in setting their preferred conditions for effective development co-operation in the Pacific, supported by the Compact tools of peer reviews, annual donor reporting against select and nuanced effectiveness indicators, and regular regional and inclusive dialogue on the results of the Compact processes.
The Forum Compact is a homegrown, politically led vehicle for mutual accountability and more effective approaches to ensuring impactful and meaningful development in the Pacific. Too often, the region is drawn into seemingly new and so-called innovative practices around development financing and effective partnerships because it is the “new thing” in development. One only needs to reflect back on the return on investment of the Forum Compact to recognise that established and proven approaches are just as, if not more, effective.
References
[1] Forum Compact (2017), “Forum Compact Review background note 1: Overview of activities and results”, unpublished.
[2] Forum Compact (2017), “Forum Compact Review background note 2: Development outcomes and financing”, unpublished.
[3] Fouad, M. et al. (2021), “Unlocking access to climate finance for Pacific Island countries”, IMF PFM blog, https://blog-pfm.imf.org/en/pfmblog/2021/09/unlocking-access-to-climate-finance-for-pacific-islands-countries.
[5] Pacific Islands Forum (2013), Pacific Climate Change Finance Assessment Framework Final Report, Pacific Islands Forum, Suva, Fiji, https://library.sprep.org/sites/default/files/2021-04/PCCFAF_Final_Report.pdf.
[4] Pacific Islands Forum (2013), Tracking the Effectiveness of Development Efforts in the Pacific Report, Pacific Islands Forum, Suva, Fiji.
Notes
← 1. As a declaration by Pacific Islands Forum Leaders, the Cairns Compact remains alive as an official record and decision of leaders. Regional commitment to and investment in deliverables embedded within the Compact were the strongest over the period 2009-18.
← 2. Five partners consistently reporting on the adapted Paris/Busan indicators under the Forum Compact were: Australia, New Zealand, the Asian Development Bank, the UN system and the World Bank.