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.