Output-based Aid - Criticism

Criticism

For many common criticisms of development aid, see Criticism of Aid.

OBA schemes have been criticized for their high administrative costs which exist for a number of reasons. The printing and distribution of vouchers can be costly. Also, there is significant cost in effectively monitoring outcomes of OBA schemes, and maintaining a process of transparency in OBA. Voucher programs may have potential problems as well. The theft or counterfeiting of vouchers could be a serious issue for those implementing OBA projects. The sale on vouchers on the black market could easily disrupt the knowledge of where vouchers are distributed.

Performance-based conditionality has come under criticism for producing intermediate indicators which often distort the achievements of particular projects. These indicators, which only convey the success of certain actors and which are susceptible to manipulation, do not provide accurate indication of long-term changes of benefit to a region. Progress should be measured in more long-term objectives which encompass many sectors that contribute to the well-being of a population. For example, to reduce child mortality in nation, many areas must be targeted, such as health care, family planning and clean water accessibility, and even though intermediate indicators of an OBA scheme in one sector may appear positive, this does not necessarily identify progress in reducing child mortality.

The Private Sector Development Strategy which OBA is included in has come under heavy criticism for many of the same reasons the World Bank has been criticized for its work in the past as well as many new criticisms of the strategy itself. In response to the strategy, it has been criticized for ignoring the many dimensions of poverty and not defining well how the 'poor' would benefit from market interventions. The idea that private sector development and OBA will “shift risk” to private sector service providers has been criticized since many private groups are risk averse when it comes to making a profit and thus would be hesitant in taking on projects lacking a guaranteed payoff.

Professor Robert Wade, of the London School of Economics, said in an article that the PSD strategy is:

“A continuation of previous Bank policies to reduce the state to a coordination and regulation role, leaving private companies to organise production and service delivery.”

Much aid is tied to conditionalities|conditionality and, even though OBA rewards performance, it will mainly reward performance in the private sector. The PSD strategy looks to the private sector to develop infrastructure that will benefit poor societies. An issue that many multinational corporations will receive some of the funding for OBAs has not been dealt with very well by the World Bank. Not only does this allow them to further their economic control of infrastructure in poorer nations, they are also able to avoid many of the risks of OBA through various agreements and by passing on some of the costs to the state and the taxpayers. An example from Guinea, in a water infrastructure OBA project, explains this point better. The water lease:

allowed the MNC to protect itself against cost increases by passing them on, with the government regulator unable to force the MNC to disclose enough information to judge the reasonableness of the requests.”

The idea of privatizing basic services comes under attack from many critics. The goal in many OBA schemes is to provide universal access to basic services, however, contracting out these services to private firms may be harmful to this goal. Private firms, with the exception of many NGOs, look to make a profit, and if this is their primary motive then universal access becomes less of a priority. Democratic accountability to state services may deteriorate. Many critics have noted that in developed countries, the state is responsible for basic services that the World Bank wants private firms to provide in developing countries. UNICEF, in a study entitled Basic Services for All: Public Spending and the Social Dimensions of Poverty, laid out moral, consensual, instrumental and historical grounds, in support of the proposition that state provision of basic services is mandatory regardless of circumstance.

Output-based approaches generally will rely on a well-established market, something that is not present in many developing countries. The regulatory and institutional mechanisms of the market are almost non-existent in many nations where OBA is used, and this does not allow domestic firms to compete on level ground with foreign firms. Sarah Anderson, with the Institute for Policy Studies, said that many grassroots and community organizations will not have the means to provide initial financing for service projects. They will be unable to sustain themselves until they get a subsidy for their performance. Rather, global firms that are already well established will more likely get OBA contracts, and in the process many local organization will no longer be part of the scheme.

The article "The Growing Dangers of Service Apartheid" written by the Globalization Challenge Initiative (GCI) identifies the following as challenges for OBA as it is described in the PSD strategy:

• The difficulty of targeting subsidies and “leakage”, or capture, of subsidies by well-to-do groups: The PSD strategy does not question the assumption that subsidies can offset the costs of user fees for poor populations;
• The difficulty of identifying all people in order to properly target subsidies;
• The incentives for private providers to pocket subsidies;
• The lack of regulatory mechanisms, which can oversee and enforce OBA contracts and ensure that services are delivered in acceptable ways;
• The lack of judicial mechanisms that permit poor users to appeal or seek recourse when a contractor fails to deliver services in the specified manner;
• The fiscal liabilities assumed by the public sector when OBA schemes fail;
• The potential problems such as: cultural conflicts, accessibility, affordability and accountability problems that arise when increasingly the contractors in OBA schemes are from international or foreign service providers