Vulnerability Indicators for Aid Allocation
Any donor has a model for allocating assistance to developing countries. The model is implicit, most often so for bilateral donors, or explicit, most often so for international institutions. Why this difference? Because bilateral assistance is discretionary, while multilateral one should reflect a consensus among members. An explicit model or formula is a way by which this consensus can be expressed. Any normative model for the allocation of multilateral (or global) assistance should rely on indicators and criteria corresponding to two main principles—equity between receiving countries; and effectiveness in the use of the resources transferred. Appropriate indicators should be designed from this perspective and combined according to policy preferences. The most usual formula used by multilateral development banks (MDBs) is performance-based allocation (PBA). It gives a major weight to so-called “performance,” with the view it enhances the effectiveness of aid. But, as it is measured, this performance is not really performance, and it is not clearly a factor in aid effectiveness. This paper argues that taking vulnerability into account helps meet the principles mentioned above, provided that appropriate indicators are designed with this aim. It examines why vulnerability indicators are needed for allocating development assistance, and which vulnerability indicators are needed for doing so. Doing that, it extends the argument from usual official development assistance (ODA) to concessional resources for adaptation to climate change.
In each case the choice of the index of vulnerability should depend on the goal pursued. What is needed is an index likely to be used (besides other criteria) to allocate resources (to allocate more to the more vulnerable countries). It should be independent of policy—countries more vulnerable because of a poor present or expected policy/resilience should not be rewarded for that For the allocation of ODA the UN’s Economic Vulnerability Index is supposed to meet this condition. For the allocation of adaptation resources, since vulnerability to climate change is quite a long-term one, it should preferably be captured through physical components. This is the main feature of the recent Ferdi Physical Vulnerability to Climate Change Index, which distinguishes it from other attempts. The PVCCI is forward looking and likely to capture long-term risks. It relies only on geo-physical components, without any debatable socio-economic component. It makes another distinction between the size of the shocks and exposure to shocks because the impact of shocks depends on initial exposure. Moreover, to take into account the diversity of the sources of vulnerability, each of which may have a high impact independently of the others, the index gives more weight to the component reflecting a higher vulnerability by using quadratic averaging.
Tag: Climate Change, Finance and Development, Investment Policy, Least Developed Countries, Multilateral, Poverty & Development, Regional/Bilateral/Plurilateral