Reallocating Aid Budgets to Respond to COVID-19

Mark Miller, Bryn Welham

May 26, 2020

Covid
Posted by Mark Miller and Bryn Welham[1]

Development agencies’ budgets are experiencing two shocks as a result of COVID-19.  First, there is extra demand to support countries’ response to the impacts of the pandemic.  Second, the supply of aid is also coming under pressure. Many donor countries are unfortunately opting to cut back aid spending at a moment when it is more needed than ever.  If you are a bureaucrat sitting in a development agency, what can be done to reallocate budgets to shifting priorities?

This is no simple answer to this question for bilateral development agencies.  International financial institutions can conjure up finance rapidly if given the right authority from their shareholders.  Development agencies, however, operate with long planning horizons, contractually locked-in multi-year expenditure plans, and complex procedures to re-allocate money.  What can they do to reprioritize spending to deal with the emergency?

In the short-term, they can adapt lessons from existing advice to governments in general. The Collaborative African Budget Reform Initiative (CABRI) has recorded lessons on budget adjustment in African countries from negative fiscal events and blogged about how these relate to COVID-19.  The IMF has produced guidance for what governments can do to adapt their expenditure to the crisis.  These guides can be adapted by development agencies seeking to review their operations. 

It would suggest a menu of options:

Looking further ahead, the impacts of COVID-19 are expected to last for years and will need to be reflected in regular budget and expenditure planning. Every government should set expenditure limits and divide money between competing priorities. What would an effective COVID-19 budget and expenditure planning round look like?

It will probably look very like a regular round of budget and expenditure planning, but with a few twists. There are plenty of technical sources offering advice on how to strategically set budgets, agree expenditure envelopes, and evaluate the effectiveness of public spending.  However, real-world experience suggests that budgeting is an art as much as a science.

Summarizing our informal knowledge and experience suggests the following guidelines for a COVID-19 expenditure round:

This article is part of a series related to the Coronavirus Crisis. All of our articles covering the topic can be found on our PFM Blog Coronavirus Articles page.

 

[1] Overseas Development Institute, London.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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