Why a new multidonor trust fund, managed by aid recipients in Liberia, works

A nurse stands beside a sign reading "All treatment at Redemption Hospital is free" at the hospital in Monrovia, Liberia. Donors have pooled millions of dollars in a government-managed trust fund to boost health care in the African country. Photo by: Tugela Riddley/IRIN

Many countries are struggling to meet the Millennium Development Goals because their governments are unwilling or unable to fulfill core functions. Sudan and Afghanistan are examples of fragile states that are receiving billions in foreign aid every year but are unlikely to reach the MDGs.

Among the classic repertoire of approaches to providing development assistance, few funding instruments can effectively channel resources through governments of fragile states and help them to become better at providing efficient basic services. International donors need new approaches that enable partner governments to “own” their country’s development and sustainably deliver utilities.

In Liberia, an innovative multidonor trust fund was used and it increased the overall resources and accountability of government, breathed life into dormant national systems and enabled continuity of basic services provided by NGOs during the relief-to-development transition.

This unique model, where the recipient government managed its ownMDTF, could be used in similar contexts where recipient ownership and national systems are development priorities.

The ‘traditional’ MDTF model

Typically, the World Bank or a U.N. agency administers a MDTF for an administrative fee. MDTFs are spent through procurement and financial management systems outside of the recipient government’s systems. Often, these MDTF mechanisms include a special implementation or project management unit that operates independently from the recipient government and reports directly to the MDTF contributing donors.

Among the advantages of using MDTFs are low financial risk and resources’ direct link to expenditure and development activities. MDTFs can also contribute to defragmentation and the alignment of development assistance with national plans.

However, there are challenges to maintaining these funds. MDTFs typically work around the recipient government and, depending upon the structure of the management fee, they can even compete with the recipient government for potential funds. By avoiding national systems, opportunities to increase national ownership and improve the way government systems function are missed. Also, MDTFs are often inflexible and perceived as inaccessible to non-governmental organizations that deliver basic services.

A new type of MDTF: Liberia’s Health Sector Pool Fund

Unlike traditional MDTFs, Liberia’s Health Sector Pool Fund is managed from within the government but with participatory oversight that includes a steering committee made up of representatives from government, civil society and contributing donors. It relies upon government systems when it comes to planning, procurement, financial management and evaluation, and it relies on civil servants being enabled to do their jobs.

So, where is it spent on? Liberia’s Ministry of Health and Social Welfare proposes how to use the fund in order to achieve its national development goals. Local companies are contracted to construct health facilities. Save the Children, the International Rescue Committee, Merlin and other NGOs are funded to deliver basic services. Technical assistance from Ernst & Young is contracted to minimize fiduciary risk and build the government’s financial management capacity.

Although it is a new mechanism, more than USD35 million has already been committed to the Health Sector Pool Fund, much of it by the U.K.’s Department for International Development. One third of the government hospitals and clinics in Liberia are now being financed through it.

Benefits of recipient-managed MDTFs

In a fragile state with limited government capacity to fulfill its core functions, the Health Sector Pool Fund provides donors like DfID, Irish Aid and UNICEF an opportunity to engage a reform-minded government in a way that reinforces good governance and accountability. It serves to strengthen national systems that are also used to manage the recipient government’s own resources while reducing the effort it takes for fragile countries like Liberia to comply with and report on multiple sources of donor funds.

For donors, funding strategies need to be responsive to each country’s context and underlying causes of fragility. When fragile governments demonstrate a commitment to reform and good governance, recipient country-managed MDTFs offer an alternative to the traditional approach whereby funds are managed on behalf of the recipient country. This alternative approach reinforces national ownership, putting fragile countries in a better position to lead their own development process, which is what donors hope for.

For recipient governments, pool funding mechanisms can attract additional resources, especially from donors who are not located in-country. Recipient-managed pool funds can increase the state’s overall effectiveness and its capacity to fulfill its core functions. The funds can shift the development paradigm from governments as passive recipients to active providers.

This type of a mechanism can also increase opportunities for constructive engagement between civil society and fragile governments, increasing mutual accountability while ensuring basic services are being delivered to the people who need them most. Recipient-managed MDTFs in the context of fragility can also be a source of flexible funding that might otherwise dry up after an emergency phase.

Opportunities in Haiti, Sudan

The accessibility of public services is a priority for people everywhere. Recipient-managed MDTFs can ensure the continuity of basic services to citizens by their government when it would otherwise not be possible. This is expected to restore public confidence and strengthen the national development process.

Recipient-managed MDTFs could be used in other countries where strengthening national systems and supporting national ownership of the development process are top priorities.

In Haiti, for example, while the World Bank-IDA-managed MDTF is critically important, a government-managed, initially small, multidonor fund could incrementally re-establish and strengthen the Haitian government’s capacity to fulfill its core functions.

And as the government of southern Sudan moves closer to independence from Khartoum in 2011, this type of government-managed MDTF could go a long way toward strengthening the systems of the nascent southern state – systems that must soon manage large oil revenues from the north.

After all, successes in reducing poverty and achieving the MDGs must be sustained. Governments are best positioned to ensure that this happens. By supporting and strengthening fragile governments’ capacity to deliver services, donors can increase these states’ chances of achieving – and sustaining – the Millennium Development Goals.

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About the author

  • Jacob Hughes

    Jacob is a development consultant who occasionally contributes op-eds to Devex News. His views do not necessarily reflect this publisher's. Jacob's background is in project development & management, originally in construction and later in the public sector.