Output-based aid (OBA) (or results-based aid) refers to development aid strategies that link the delivery of public services in developing countries to targeted performance-related subsidies. OBA subsidies are offered in transport construction, education, water and sanitation systems, and healthcare among other sectors where positive externalities exceed cost recovery exclusively from private markets. OBA is a form of results-based financing, with similar principles as performance-based contracting.
Interest in OBA and results-based financing in the international development sector is growing.[1] In healthcare, OBA is often implemented by contracting providers in either the public or private sector, sometimes both, and issuing vouchers to people considered at higher risk of disease or in greater need of the health services. OBA (in the form of results-based contracts) is also used for rural water supply in Africa.[2][3]
One of the origins and drivers of the OBA concept was in 2002, when the World Bank Group launched its Private Sector Development Strategy (PSD), of which OBA was a key component.[4] The World Bank has been the most active participant in OBA. In 2003, along with the UK's Department for International Development (DFID), they launched the "Global Partnership on Output-Based Aid" (GPOBA), later renamed to "Global Partnership for Results-Based Approaches" (GPRBA). The reason for the change of name was because the partnership "broadened its mandate in 2019 to incorporate more flexible financing solutions beyond OBA".[5]:14
Definition and terminology
According to the World Bank Group, Output-based Aid (OBA) is defined as follows: "Output-based Aid is a form of RBF (results-based financing) designed to deliver access to infrastructure and social services for the poor. Service delivery is contracted out to a third party—public or private—that receives a subsidy to complement or replace the required user contribution."[6]
As part of the process of OBA, "the service provider is responsible for pre-financing the project, and is reimbursed after the services have been delivered and independently verified."[6]
Related terms
A similar term is payment by results (PbR) which is also used to describe the principles of OBA. In general terms, PbR is a type of public policy instrument whereby payments are contingent on the independent verification of results.
Results-based aid is concerned with incentivizing national-level outcomes and involves the linking of ODA (e.g. from bilateral or multilateral development agencies to developing country governments) to verifiable results, such as performance against one or more outcome indicators, or the successful implementation of a government program. Possible outcomes might include number of children passing an exam, an improvement in the infant mortality rate, or the number of people with a defined improvement in access to energy.
Results-based financing is concerned with the delivery of national or sub-national outputs, and could be used by developing country governments (national or local), public agencies, or development agencies as incentive for the provision of goods or services, create or expand markets, or stimulate innovation. Possible target outputs might include the number of vaccines administered, the number of teachers that are trained, the number of new electricity connections that are provided in a defined area. Results-based financing includes approaches such as output-based aid (OBA).
Overview
OBA is specifically targeted for individuals in developing countries who lack the financial means to pay for basic services. The service provider will receive subsidies to replace costs associated with providing the service to people, such as user fees. Individual agents will verify that the service is being delivered and based on the performance of the service-provider, a subsidy will be granted. That is how it is "performance-based".[7][8]
OBA links disbursement to results. It is an alternative to the majority official development assistance (ODA), which is generally provided as grants, loans and guarantees, and is therefore disbursed in advance of delivery. OBA seek to provide incentives for the achievement of both outcomes and outputs by developing country governments, public agencies, commercial operators and civil society organizations.
OBA generally works through a private firm, or another third party, acting as the service provider. The service provider is responsible for the initial financing of the project and, only after results have been verified, will the firm receive subsidies from a donor. In such schemes, it is the provider who bears the risk of loss, rather than the aid donor, and output-based schemes allow for the tracking of results because of the way they function. Integration of the private sector into aid schemes is common with OBA, since they often provide the initial financing. The World Bank sees OBA as a way to improve aid effectiveness. This differs from traditional aid schemes that will usually focus on the inputs to service providers rather than the outputs. The donor is usually the World Bank, a government or an international organization or philanthropist that is part of the OBA scheme. Subsidies from a donor will generally serve to complement or reduce user fees. The subsidy is paid only after the particular service has been delivered to a community. The subsidies are targeted to poorer individuals, since OBA initiatives are carried out in regions with significant amounts of poverty.[9][10]
In healthcare, vouchers are granted to patients who require medical attention and cannot afford or access it. These vouchers can be taken to hospitals or clinics, whether private or public, and they will be provided with the medical attention they require. The clinic or healthcare professional that provided the medical service will be subsidized for the delivery of the service by a donor.[11]
Advantages
According to the GPOBA, OBA improves upon other forms of aid in a number of ways. The first is by creating transparency since the provider and receiver of any subsidy will be known to each other and the public. Performance risk is shifted to the providers in OBA schemes since they are accountable for what they deliver. OBA schemes are said to provide incentives for innovation in projects as well as a means for mobilizing expertise and finance from the private sector. Finally, OBA provides internal tracking of results.[12]
Malcolm Potts of the University of California, Berkeley believes OBA schemes to be more effective than traditional aid projects because they invest in extant infrastructure. OBA schemes can provide poor consumers with the leverage to determine the quality of the service they are provided with. For example, in a health-care project, individuals receiving OBA will gain choice in where they want to go for their health care needs, essentially a choice between options in the public and private sector. With OBA, existing service providers are granted subsidies based on the number of people who use their services. In this way an individual can choose between multiple service providers, whether public, private or non-governmental, and only after the service has been provided do they receive the subsidy.[13]
Compared to other aid schemes where projects were pre-funded by a donor, OBA uses explicit funding; if service providers fail to deliver, they and their investors, rather than taxpayers, who bear the brunt of financial loss.[14]
Proponents of OBA argue that this approach is more likely to deliver the desired development objective, with less scope for waste and greater freedom and incentive for the beneficiary to innovate or achieve the desired objective at least cost.
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.[15] Also, there is significant cost in effectively monitoring outcomes of OBA schemes, and maintaining a process of transparency in OBA. Voucher theft or counterfeiting could be a serious issue for OBA projects. The sale on vouchers on the black market could easily disrupt the knowledge of where vouchers are distributed.[16]
Possible criticisms include the need for recipients to obtain pre-financing, the risk of unintended consequences, higher monitoring and verification costs, and the difficulty of setting the incentive at the optimum level.
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, reducing child mortality requires many areas—health care, family planning and clean water—to be targeted, 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.[17]
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, 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.[18]
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."[19]
Much aid is tied to 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 the poor. 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. For example, the lease for a Guinea water infrastructure OBA project "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."[20]
Privatizing basic services is a contentious issue because contracting out service provision to private firms may be detrimental to universal service provision. Private firms look to make a profit, and if this is their primary motive then universal access becomes less of a priority. 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, arguing that state provision of basic services is mandatory regardless of circumstance.[21]
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 of 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.[22]
History
The first instance of voucher-based OBA was in South Korea and Taiwan in the 1960s. According to Malcolm Potts, these family-planning initiatives were very successful. There were few such instances where OBA was used for development purposes up until the new millennium. Voucher-based healthcare schemes were piloted in Latin America, Asia and Africa in the 1990s and early 2000s.[23]
In 2002, the World Bank launched its Private Sector Development Strategy (PSD), of which OBA was a key component.[4] The World Bank has been the most active participant in OBA. In 2003, along with the UK's Department for International Development (DFID), they launched the "Global Partnership on Output-Based Aid" (GPOBA), later renamed to "Global Partnership for Results-Based Approaches" (GPRBA). The reason for the change of name was because the partnership "broadened its mandate in 2019 to incorporate more flexible financing solutions beyond OBA".[5]:14 GPRBA exists to create "financial incentives for service providers to extend basic services specifically to low-income communities, while also providing incentives for consumers in these communities to access the services".[24] The partnership has worked with various international partners to pursue output-based initiatives in fields of healthcare, water, energy, transport, telecommunications and education. Regarding the number and size of supported projects GPRBA states that: "As of June 30, 2023, the GPRBA portfolio consists of 58 projects in 7 sectors, spanning 30 countries and 1 territory, for a total grant commitment of $304 million and cumulative disbursements of $233.6 million."[5]:18
Examples
Interest in OBA and results-based financing in the international development sector is growing.[1] The UK Department for International Development is piloting "cash on delivery aid"[25] (a form of results-based aid) and results-based financing programs in a number of countries.[26] The World Bank has launched the program-for-results financing in 2011,[27] a new results-based lending instrument, and the EU is exploring results-based approaches for the aid component of the multi-annual financial framework from 2014.
Healthcare
In healthcare, OBA is often implemented by contracting providers in either the public or private sector, sometimes both, and issuing vouchers to people considered at higher risk of disease or in greater need of the health services. Two of the earliest examples of competitive vouchers and fee-for-service contracts in healthcare were implemented in South Korea and Taiwan in the 1960s. In Nicaragua, the Instituto CentroAmericano de la Salud (Central American Health Institute) began voucher programs for reproductive and sexual health services in 1995. New programs for facility-based maternal deliveries in Kenya and Uganda began in 2006 and 2009 respectively.[28][29][30][31]
Information technology
In Mongolia projects to improve rural telecommunications have been undertaken. Existing communication operators bid for subsidy contracts to expand their networks and services to rural areas with poor access to telecommunications. The bidding operators were also aware of the risk associated with the subsidies, since they would only receive funding if certain outcomes had been met. These OBA schemes are meant to provide universalInternet access to the internet.[32]
Rural water supply
Performance-based service delivery models for rural water supply have emerged in Africa despite the unfavourable institutional environment.[33][3] Researchers proposed policy recommendations to improve access to safe drinking water in rural Africa. One of them is to design and test performance-based funding models at national and regional scales.[33] This is similar to the payment-by-results scheme that the OBA approach uses.
For example, the Uptime Catalyst Facility, a UK-registered charity, delivers global rural water services through results-based contracts (RBCs).[34]:85 It issues grants ranging from $5,000 to $400,000 per year to rural water maintenance providers. Uptime works with more than 12 providers in 12 countries to bring sustainable drinking water supply to 1.5 million rural people. Indicators for measuring results are mainly based on reliability of the water systems’ availability and volumes disbursed. At a later stage, Uptime Catalyst Facility plans to turn this pilot work into a public-financing model in Africa, Asia and Latin America.[34]:59 In 2024, the Uptime Catalyst Facility expects to disburse "USD 3 million through RBCs linked to reliable drinking water services for c. 5 million people who pay a share of service operating costs".[2]:6
Corporates and philanthropy can also take part in results-based contracts for water supply as part of their commitments to ESG (Environmental, social, and governance) and CSR (Corporate social responsibility).[2] These kinds of contracts have reduced uncertainty and risk for the funder because the funder only pays for drinking water delivered by a professional implementer after the results have been verified.[2]:2 For this to work well, a data integrity system is needed. The water users pay tariffs which provides co-funding. Performance metrics for these results-based contracts are related to "quantity, quality, affordability, reliability and proximity".[34]:2
Digital technologies can be used for innovative financing mechanisms in utilities sectors in Africa and Asia, such as results-based finance (RBF) mechanisms that are digitally-verified. In these schemes, "grant disbursements [are] premised at least in part on automated verification of performance indicators through digital verification, for example leveraging sensors or metering data".[34]:20
A public–private partnership is a long-term arrangement between a government and private sector institutions. Typically, it involves private capital financing government projects and services up-front, and then drawing revenues from taxpayers and/or users for profit over the course of the PPP contract. Public–private partnerships have been implemented in multiple countries and are primarily used for infrastructure projects. Although they are not compulsory, PPPs have been employed for building, equipping, operating and maintaining schools, hospitals, transport systems, and water and sewerage systems.
The KfW, which together with its subsidiaries DEG, KfW IPEX-Bank and FuB forms the KfW Bankengruppe, is a German state-owned investment and development bank, based in Frankfurt. As of 2014, it is the world's largest national development bank and as of 2018 Germany's third largest bank by balance sheet. Its name originally comes from Kreditanstalt für Wiederaufbau. It was formed in 1948 after World War II as part of the Marshall Plan.
Development aid is a type of aid given by governments and other agencies to support the economic, environmental, social, and political development of developing countries. It is distinguished from humanitarian aid by aiming at a sustained improvement in the conditions in a developing country, rather than short-term relief. The overarching term is foreign aid. The amount of foreign aid is measured though official development assistance (ODA). This is a category used by the Development Assistance Committee (DAC) of the Organisation for Economic Co-operation and Development (OECD) to measure foreign aid.
Access to at least basic water increased from 94% to 97% between 2000 and 2015; an increase in access to at least basic sanitation from 73% to 86% in the same period;
Drinking water supply and sanitation in Argentina is characterized by relatively low tariffs, mostly reasonable service quality, low levels of metering and high levels of consumption for those with access to services. At the same time, according to the WHO, 21% of the total population remains without access to house connections and 52% of the urban population do not have access to sewerage. The responsibility for operating and maintaining water and sanitation services rests with 19 provincial water and sewer companies, more than 100 municipalities and more than 950 cooperatives, the latter operating primarily in small towns. Among the largest water and sewer companies are Agua y Saneamientos Argentinos (AYSA) and Aguas Bonarenses S.A. (ABSA), both operating in Greater Buenos Aires, Aguas Provinciales de Santa Fe, and Aguas Cordobesas SA, all of them now publicly owned. In 2008 there were still a few private concessions, such as Aguas de Salta SA, which is majority-owned by Argentine investors, and Obras Sanitarias de Mendoza (OSM).
Despite many years of concerted efforts and achievements in expanding coverage and improving service sustainability, many issues remain to be addressed in the water and sanitation sector. Key issues include: (i) a low level of coverage for both water and sanitation, in particular in rural areas; (ii) a low level of cost recovery, despite a legal obligation for tariffs to recover costs; and (iii) an institutional framework that is only partially effective.
Water supply and sanitation in Indonesia is characterized by poor levels of access and service quality. More than 16 million people lack access to an at least basic water source and almost 33 million of the country's 275 million population has no access to at least basic sanitation. Only about 2% of people have access to sewerage in urban areas; this is one of the lowest in the world among middle-income countries. Water pollution is widespread on Bali and Java. Women in Jakarta report spending US$11 per month on boiling water, implying a significant burden for the poor.
Water supply and sanitation in Rwanda is characterized by a clear government policy and significant donor support. In response to poor sustainability of rural water systems and poor service quality, in 2002 local government in the Northern Byumba Province contracted out service provision to the local private sector in a form of public–private partnership. Support for public-private partnerships became a government policy in 2004 and locally initiated public-private partnerships spread rapidly, covering 25% of rural water systems as of 2007.
As literacy and socioeconomic status improves in Ethiopia, the demand for quality service is also increasing. Besides, changes in the demographic trends, epidemiology and mushrooming urbanization require more comprehensive services covering a wide range and quality of curative, promotive and preventive services.
The water supply and sanitation sector in Ghana is a sector that is in charge of the supply of healthy water and also improves the sanitation of water bodies in the country.
The Ugandan water supply and sanitation sector made substantial progress in urban areas from the mid-1990s until at least 2006, with substantial increases in coverage as well as in operational and commercial performance. Sector reforms from 1998 to 2003 included the commercialization and modernization of the National Water and Sewerage Corporation (NWSC) operating in cities and larger towns, as well as decentralization and private sector participation in small towns.
Water supply and sanitation in Mozambique is characterized by low levels of access to at least basic water sources, low levels of access to at least basic sanitation and mostly poor service quality. In 2007 the government has defined a strategy for water supply and sanitation in rural areas, where 62% of the population lives. In urban areas, water is supplied by informal small-scale providers and by formal providers.
Water supply and sanitation in Senegal is characterized by a relatively-high level of access compared to most of sub-Saharan Africa. A public–private partnership (PPP) has operated in Senegal since 1996, with Senegalaise des Eaux the private partner. SDE does not own the water system, but manages it on a 10-year lease from the Senegalese government. Between 1996 and 2014, water sales doubled to 131 million cubic meters per year; the number of household connections increased by 165 percent, to over 638,000. According to the World Bank, "The Senegal case is regarded as a model of public-private partnership in sub-Saharan Africa". A national sanitation company is in charge of sewerage, wastewater treatment and stormwater drainage, which is modeled on the national sanitation company of Tunisia and is unique in sub-Saharan Africa.
Tanzania has a hierarchical health system which is in tandem with the political-administrative hierarchy. At the bottom, there are the dispensaries found in every village where the village leaders have a direct influence on its running. The health centers are found at ward level and the health center in charge is answerable to the ward leaders. At the district, there is a district hospital and at the regional level a regional referral hospital. The tertiary level is usually the zone hospitals and at a national level, there is the national hospital. There are also some specialized hospitals that do not fit directly into this hierarchy and therefore are directly linked to the ministry of health.
Water supply and sanitation in Morocco is provided by a wide array of utilities. They range from private companies in the largest city, Casablanca, the capital, Rabat, Tangier, and Tetouan, to public municipal utilities in 13 other cities, as well as a national electricity and water company (ONEE). The latter is in charge of bulk water supply to the aforementioned utilities, water distribution in about 500 small towns, as well as sewerage and wastewater treatment in 60 of these towns.
Microcredit for water supply and sanitation is the application of microcredit to provide loans to small enterprises and households in order to increase access to an improved water source and sanitation in developing countries. While most investments in water supply and sanitation infrastructure are financed by the public sector, investment levels have been insufficient to achieve universal access. Commercial credit to public utilities was limited by low tariffs and insufficient cost-recovery. Microcredits are a complementary or alternative approach to allow the poor to gain access to water supply and sanitation in the aforementioned regions.
India has a multi-payer universal health care model that is paid for by a combination of public and government regulated private health insurances along with the element of almost entirely tax-funded public hospitals. The public hospital system is essentially free for all Indian residents except for small, often symbolic co-payments in some services. Economic Survey 2022-23 highlighted that the Central and State Governments’ budgeted expenditure on the health sector reached 2.1% of GDP in FY23 and 2.2% in FY22, against 1.6% in FY21. India ranks 78th and has one of the lowest healthcare spending as a percent of GDP. It also ranks 77th on the list of countries by total health expenditure per capita.
Water supply and sanitation in Vietnam is characterized by challenges and achievements. Among the achievements is a substantial increase in access to water supply and sanitation between 1990 and 2010, nearly universal metering, and increased investment in wastewater treatment since 2007. Among the challenges are continued widespread water pollution, poor service quality, low access to improved sanitation in rural areas, poor sustainability of rural water systems, insufficient cost recovery for urban sanitation, and the declining availability of foreign grant and soft loan funding as the Vietnamese economy grows and donors shift to loan financing. The government also promotes increased cost recovery through tariff revenues and has created autonomous water utilities at the provincial level, but the policy has had mixed success as tariff levels remain low and some utilities have engaged in activities outside their mandate.
Healthcare in Belize is provided through both public and private healthcare systems. The Ministry of Health (MoH) is the government agency responsible for overseeing the entire health sector and is also the largest provider of public health services in Belize. The MoH offers affordable care to a majority of Belizeans with a strong focus on providing quality healthcare through a range of public programs and institutions.
The Egyptian healthcare system is pluralistic, comprising a variety of healthcare providers from the public as well as the private sector. The government ensures basic universal health coverage, although private services are also available for those with the ability to pay. Due to social and economic pressures, Egypt's healthcare system is subject to many challenges. However, several recent efforts have been directed towards enhancing the system.
1 2 McNicholl, D., Hope, R., Money, A., Lane, A., Armstrong, A., Dupuis, M., Harvey, A., Nyaga, C., Womble, S., Allen, J., Katuva., J., Barbotte, T., Lambert, L., Staub, M., Thomson, P., and Koehler, J. (2021). Delivering Global Rural Water Services through Results-Based Contracts. Uptime consortium, Working Paper 3.
1 2 Citizens Network on Essential Services, "Tools For Advocacy: Basic Services Report On Board-Approved Private Sector Development (PSD) Strategy."
↑ Global Partnership for Output-Based Aid. (2009) "OUTPUT-BASED AID – FACT SHEET"
↑ KFW Entwicklungsbank, "Interview with Prof. Dr. Malcolm Potts with respect to Output-Based-Aid (OBA) voucher schemes as a means of promoting public health in developing countries."
↑ KFW Entwicklungsbank, "Interview with Prof. Dr. Malcolm Potts with respect to Output-Based-Aid (OBA) voucher schemes as a means of promoting public health in developing countries
↑ Sandiford P, Gorter A, Rojas Z, Salvetto M. 2005. A Guide to Competitive Vouchers in Health. Private Sector Advisory Unit, The World Bank Group: Washington, DC.
↑ Instituto CentroAmericano de la Salud (Central American Health Institute. "Sexual and Reproductive Health Program."
↑ Output-Based Healthcare. (2007). "trials and successes of contracted patient care in uganda." Available from <www.oba-uganda.net>
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