Performance-Linked Aid

Performance-linked aid is the provision of additional assistance to partner governments and agencies to recognise progress in achieving identified policy or administrative reforms or improvements in specific development outcomes.

Early evidence from the use of performance-linked aid indicates that it has helped partner governments to set and implement effective policy and can be a powerful instrument for reform — provided there is local ownership and clarity around performance measures.

The Australian Government has announced support for performance-linked aid elements within the new Pacific Partnerships for Development and for an expansion of existing performance-linked aid arrangements in Asia.

Performance-linked aid will support progress towards partner government reform priorities. Performance measures and the use of performance payments will be jointly determined with partner governments and aligned with their priorities.

This initiative will assist partner governments to develop and implement reforms and will enhance opportunities to improve policy dialogue. Additional assistance could recognise, for example, improvements in the quality of public expenditure, levels of funding from partners’ own budgets committed to national development priorities, the integrity of public accountability systems, or the effectiveness of revenue collections. Additional funding may also recognise improvements in the delivery of basic services in priority areas such as health, education and infrastructure, or improvements in the business-enabling environment through microeconomic or regulatory reform.

May 2009