Working Paper 103 - Accounting for Vulnerability of African Countries in Performance Based Aid Allocation

The African Development Bank allocates itsconcessional resources through a procedurewhich is mainly based on the quality of thebeneficiary countries’ economic policy andgovernance. This allocation procedure reliesmainly on the Performance-Based Allocationformula which can be criticized on two grounds.Firstly, the weight on economic policy andgovernance is viewed as being excessive.Secondly, it lacks transparency and consistency.We consider how to amend that formula soas to take into account certain common characteristicsof many African countries. The mainproposal is to augment the formula by an economicvulnerability criterion. The numericalsimulations show that the introduction of theUnited Nations economic vulnerability index inthe formula gives rise to allocations which notonly account for post conflict situations butalso inherent fragility. We also consider a lowerpopulation weight in order to address the problemof country size. This change helps avoidinconsistencies arising from the application ofcountry allocation ceilings in the various stagesof the computation. Finally, a few proposalsconcerning the African Development Fund’ssupport to regional integration are explored.