Executive Summary

The 2007 Aid Effectiveness Report (AER) has been prepared for the first meeting of the Cambodia Development Cooperation Forum (CDCF) and represents an attempt to introduce a more evidence-based and results-oriented approach to aid management in Cambodia. Potential transmission mechanisms between aid effectiveness work and improved development outcomes include:

1. the opportunity provided by the new aid effectiveness agenda to consolidate national ownership;

2. improved national planning and budgeting to inform resource allocation; and

3. renewed focus on capacity development practices and the use of monitoring systems.

Progress in consolidating the development partnership

In its annual review of the development partnership, the AER recounts significant progress but also highlights the need to turn our attention from planning and conducting studies towards a focus on the implementation of the H-A-R Action Plan. Major milestones in 2006 and early 2007 included the preparation of the Strategic Framework for Development Cooperation Management, the completion of a GDCC-TWG Review, and the production of a 'Guideline on the Role and Functioning of the Technical Working Groups'. In October 2006, the Government and most major development partners also recommitted themselves to this joint endeavour by co-signing the Declaration on Enhancing Aid Effectiveness. The Report proposes that it is perhaps now time for taking concrete actions to consolidate the link between aid effectiveness work and the achievement of development results.

Analysis of trends in the provision of development assistance - Fragmentation and Concentration

The analytical section of the Report demonstrates that the development partnership in Cambodia is characterised by over 30 development partners providing support across a wide range of sectors, with many of these development partners supporting a large number of activities and projects.

Trends in Development Assistance

Development Partner Disbursements (USD million)

Despite efforts to establish programme-based approaches, development assistance is provided mainly in the form of projects, with approximately half of total aid in the form of technical assistance. The Report emphasises the need for more effective aid management practices to be established if this support is to be used to maximise effect. Other significant analytical findings of the Report are:

• Development assistance in 2006 is provisionally estimated at USD 594.8 million, a small decline from the amount of USD 610 million reported for 2005 (which has been revised upwards based on a previous estimate of USD 524.9 million reported to the April 2006 CG Meeting);

• There is a relatively strong degree of alignment between the NSDP's financing profile and the commitment of external financing reported in the PIP. Actual disbursements, while broadly matching the NSDP profile, are not quite as closely aligned, however;

• Broadly in line with the NSDP, the sectors receiving the most development assistance in 2006 were health (USD 110 million), governance (USD 93 million), education (USD 71.5 million), transportation (USD 53 million) and rural development (USD 45.5 million).

• Loan financing declined from USD 171 million in 2005 to USD 136.1 million, reflecting the shift toward grant funding by major donors. ADB remains the largest loan provider (USD 54.6 million) while the transport sector is the main recipient of loan finance (USD 29.1 million);

• Investment programmes (46.5%) and technical cooperation (46.2%) comprise the main shares of development finance. Concern related to high levels of technical cooperation, which are approximately double the average rate for LDCs, remains a key aid effectiveness challenge;

• The Report shows that NGOs make a significant contribution to the national development effort, providing over USD 50 million of their own funds and implementing USD 63 million of donor assistance. Health, governance and education provide the main focus for NGO activity;

• There is encouraging evidence of development partners harmonising their approaches and working together in key sectors such as health. While the data is inconclusive it suggests that still more needs to be done to ensure that these partnerships contribute to the aid effectiveness effort.

The main data source of the Report is the CDC Database, complemented by results from the 2006 Paris Declaration monitoring survey and Technical Working Group (TWG) Progress Reports. The Report recognises that data integrity issues continue to be of concern and proposes that further effort by Government, development partners and NGOs to validate the information provided would facilitate a closer alignment of support to the NSDP as well as supporting the evolution towards more evidence-based development management across the priority sectors.

Implementation of the Harmonisation, Alignment and Results (H-A-R) Action Plan

Having analysed the main trends in development assistance, alignment with the NSDP and different funding modalities, the Report turns to the implementation of the H-A-R Action Plan. Across all sectors and TWGs there is encouraging evidence of progress. In the context of the H-A-R Action Plan's identified priority actions, the Report highlights the following:

This section concludes that, while much has been achieved, Government and development partners must continue to strengthen their partnership and identify practical measures to promote the impact of aid. In this way, their efforts may then have a demonstrable effect on: (i) the reduction of transaction costs and enhanced national aid management; (ii) in utilising technical cooperation so that it contributes more effectively to building national capacity; and (iii) most important, in making a measurable contribution to the attainment of the Cambodia Millennium Development Goals.

Identifying a set of aid effectiveness indicators

A principal aid effectiveness-related activity of 2006 was the Paris Declaration monitoring survey, an exercise that provides the basis for establishing a set of national indicators to augment the H-A-R Action Plan. Government noted the strong commitment of development partners to completing the survey exercise and to ensuring that the results they provided gave an accurate reflection of how they viewed their efforts to implement the Paris Declaration.

Having completed this exercise it was therefore possible to incorporate these indicators into the H-A-R Action Plan, although they may require some further validation before targets can be agreed at the national level. This process can now be efficiently undertaken as, by customising the CDC Database, data on most of these indicators, i.e. those at the project level, can be routinely monitored for sector and national reporting purposes. Based on the dialogue that accompanied the process of completing the survey and this Report, two additional indicators to those used in the Paris Declaration exercise have been added:

1. To monitor the number of delegated partnerships and co-financing arrangements; and

2. To work with development partners to collect, validate and report on information entered into the CDC Database that will be used for Government-wide aid management purposes.

The next task in H-A-R monitoring will therefore be to validate the data of each development partner and to consider the nature of any sector-specific aid coordination challenges before identifying additional concrete actions – and associated indicators and targets - that are considered necessary.

Consolidating a set of policy-based recommendations and actions

By combining the quantitative analysis with the complementary reports provided by line ministries and TWGs, it is possible to make some practical recommendations on how to proceed with the implementation of the H-A-R Action Plan. Other than augmenting the H-A-R Action Plan with a set of indicators, it is not proposed that the Plan be modified but, emphasising the partnership-based nature of aid effectiveness work, it is recommended that the relative priorities and implementation efforts be concentrated on the following actions:

Recommendation One: Increased Effectiveness of the Technical Working Groups and GDCC

1. Development partners should actively engage with lead ministries to review the TWG Guideline and to identify a roadmap, and monitoring tool, for increased aid effectiveness;

2. Line ministries and TWGs should identify the nature of transaction costs associated with aid management and agree specific prescriptive actions to address them;

3. Programme-based approaches must evolve so that they represent real efficiencies in aid management, including pooled technical cooperation, joint reviews, increased use of evaluations and common implementation arrangements using Government systems.

Recommendation Two: Implementing the Strategic Framework and the CDC Mandate

1. Development partners should routinely include CRDB/CDC in arrangements for signing new financing agreements and country strategies;

2. Development partners are requested to enter details of all their support into the CDC Database and to provide copies of signed project documents and agreements;

3. Development partners should ensure that consultations with CDC take place at least on an annual basis, including to validate data.

Recommendation Three: Capacity Development and Impact of Technical Cooperation

1. Development partners should participate in and support the study on technical cooperation to be undertaken by CDC in the latter half of 2007;

2. The recommendations of the TC report should be linked to the implementation of the H-A-R Action Plan across all line ministries and TWGs, including needs assessments;

3. In the context of the major reforms and the use of programme-based approaches, development partners should work together to assess and rationalise the capacity and advisory components of their support to Government.

Recommendation Four: Promoting Mutual Accountability

1. Government lead ministries and development partners should conduct joint reviews across all reforms, TWGs and sectors;

2. Where considered necessary, TWGs may choose to employ an independent monitoring exercise to identify partnership-based solutions to aid partnership-based challenges;

3. Annual routine monitoring of the JMIs, the H-A-R Action Plan and its associated indicators will continue to provide the basis for a dialogue at the annual CDCF meeting.

Progress in taking forward these recommendations and in overall implementation of the Strategic Framework and the H-A-R Action Plan will be assessed in mid-2008, which will represent the mid-way point in the NSDP cycle. This will provide an opportunity for any revision of the H-A-R Action Plan that is considered to be necessary.

Conclusion

This Report attempts to establish a closer link between aid effectiveness work and efforts to realise improved development results. The analysis provides evidence-based policy recommendations that may contribute not only to more effective aid management but also to enhanced development results. The Report has established empirically, for example, that Cambodia's aid coordination challenge is formidable and the manner in which aid is programmed, managed and delivered will therefore influence the outcome of development assistance as much as the amount that is provided.

It is therefore encouraging that most line ministries, in partnership with their associated TWGs and development partners, have reported making significant progress but, as the 2006 Paris Declaration monitoring survey highlighted, much remains to be done if aid coordination-related activities are to move beyond the level of the cosmetic towards making a real difference in delivering results and to developing national capacity that will sustain progress towards the NSDP targets and CMDGs.

It must also be observed that the management of development assistance cannot be seen as an exclusively technical exercise. There are many complexities, concerns and interests that inform the scale and scope of development cooperation. The analysis presented here must therefore be nuanced into the wider discussion related to the role, rationale and desired impact of development assistance but, based on the significant progress made to date, and the demonstrated commitment to partnership, there is every reason to believe that the recommendations made in this Report can be fully implemented.

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