Publication: Targeting subsidies through
output-based aid
Loading...
Published
2008-10
ISSN
Date
2012-08-13
Author(s)
Editor(s)
Abstract
Output-based aid (OBA), or performance-based grants, can be used to help target services to the poor. Under OBA schemes, service providers are compensated only after delivery of a specified output, such as water connections of a specified quality, to a targeted beneficiary. In most cases that targeted beneficiary would be a poor household or community. Subsidies are provided in the form of payments for the provision of service to targeted groups to help cover the gap between the cost of provision and the user's ability to pay. Targeting subsidies involves challenges. OBA can provide opportunities to enhance targeting and lead to greater transparency in reaching the poor. While OBA is not yet mainstreamed in all infrastructure and social services sectors, the principles and mechanisms are compelling, and initial results promising.
Link to Data Set
Citation
“Mumssen, Yogita; Kumar, Geeta; Johannes, Lars. 2008. Targeting subsidies through
output-based aid. OBApproaches; Note No. 22. © World Bank. http://hdl.handle.net/10986/11012 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Access to Finance in Output-Based Aid(World Bank, Washington, DC, 2010-10)Output-Based Aid (OBA) and other results-based financing mechanisms are gaining popularity in the development context for many reasons, in particular, the desire to link scarce public funding with actual results on the ground. But withholding disbursements until the delivery of 'results' or 'outputs' requires that the service providers delivering the results must have access to finance (A2F) to pay for the 'inputs' in the first place. Such finance is not always available or affordable. The purpose of this working paper is to outline some of the key issues related to OBA and A2F. The analysis focuses on the energy, water, and health sectors. Micro, small and medium enterprise (MSME) financing is the main topic; however, OBA is ultimately about poor households affording access to basic services, and many OBA schemes attempt to address A2F for households, so some of these innovations are also described. The working paper is expected to support a consultative process between experts dealing with A2F challenges and experts on OBA. This process should help raise awareness of the OBA approach among potential financiers, and help consider solutions (instruments, partnerships, capacity building) so that OBA and other similar results-based financing mechanisms can be brought to scale and integrated into broader sector policy, where appropriate.Publication Output-Based Aid : Lessons Learned and Best Practices(World Bank, 2010)Governments in developing countries and members of the development aid community are acutely aware of the need to find more effective ways to improve basic living conditions for the poor. Traditional approaches to delivering public support have not always led to the results intended. Results-based financing instruments are now recognized as one important piece of the aid-delivery puzzle. Results-based financing (RBF) is an umbrella term that includes output-based aid, provider payment incentives, performance-based interfiscal transfers, and conditional cash transfers. What these mechanisms have in common is that a principal entity provides a financial or in-kind reward, conditional on the recipient of that reward undertaking a set of predetermined actions or achieving a predetermined performance goal. The ultimate aim is to increase the effectiveness of scarce public resources for the provision of basic services. This book is structured as follows: part one includes chapter one, which defines output-based aid (OBA) and puts it in the context of traditional aid-delivery mechanisms and RBF instruments. Chapter two provides an overview of where OBA approaches are being implemented as well as a description of the various applications of OBA: one-off, transitional, or ongoing subsidies. Part two consists of six chapters comprising the specific sector reviews: information and communication technology (ICT), roads (transportation), energy, water and sanitation, health, and education. Part three starts with chapter nine, which summarizes the lessons learned from the specific sectors, focusing on cross-cutting issues. Chapter ten concludes the review and considers where OBA is heading and what can be done to make OBA more effective and widespread, where applicable, to help improve access to basic services for the poor. The appendix presents a table of all OBA projects identified in the World Bank Group to date.Publication Output-Based Aid and Energy : What Have We Learned So Far?(World Bank, Washington, DC, 2010-11)Worldwide, nearly 1.4 billion people live without access to electricity and nearly 2.7 billion people use traditional biomass fuels for cooking. One challenge to increasing reliable energy access for the poor is their limited ability to pay the up-front connection fees for electricity and natural gas. Output-based aid (OBA) approaches in which subsidy payments are linked to predefined outputs, such as installation of a working household connection or solar home system offers a potential solution that has increased energy access for more than 6.8 million poor beneficiaries. A recent World Bank review of OBA concludes that there is a case to adopt OBA more widely, where there is an enabling environment (Mumssen, Johannes, and Kumar, 2010). This note discusses lessons learned and best practices in implementing OBA in the energy sector.Publication Output-Based Aid in Infrastructure : A Tool for Reducing the Impact of Corruption(World Bank, Washington, DC, 2007-08)This note stress that it is important to reduce the financial cost of corruption by limiting bribe payments. But even more important is to ensure that corruption does not reduce the quantity and quality of infrastructure provision. Output-based aid (OBA) is a tool that can help achieve these goals. While output-based aid can do much to help reduce the development impact of corruption, further gains may require tackling some remaining challenges.Publication Social Assistance Transfers in Bosnia and Herzegovina : Moving Toward a More Sustainable and Better-Targeted Safety Net(Washington, DC, 2009-04-30)Public expenditures on non-insurance social protection cash transfers absorb a huge share of the entities' respective budgets. This level of spending requires buoyant public revenues. However, public revenues will be under continuing pressure in view of the impending economic crisis. Moreover, devoting a large proportion of public funds to social transfers has the effect of crowding out resources that could be devoted to public investments which will be increasingly needed to stimulate growth as the economy begins to sag under the impact of the world economic crisis. In addition, there is evidence that some rights based programs create disincentives for employment. This situation is fiscally unsustainable, economically inefficient, and socially inequitable. Bosnia and Herzegovina (BH) needs to completely overhaul it s non-insurance social protection cash transfer programs. There are many ways in which BH could reform these programs and put in place measures aimed at developing a social safety net that is: (a) less of a burden on public resources, (b) more efficient, and (c) better targeted to the poor. Specifically, it is recommended that the governments in BH consider a three pronged approach with measures to: 1) improve and introduce targeting mechanisms to better channel resources to the poor; 2) strengthen benefits administration and beneficiary registry systems; and, 3) rationalize disability-related benefit schemes. An increasingly widespread recognition of the need for rationalization of the non-insurance social protection cash benefits is discernible in both the decision-making circles and in the public discourse in BH.
Users also downloaded
Showing related downloaded files
Publication FY 2024 Seychelles Country Opinion Survey Report(Washington, DC: World Bank, 2025-01-27)The Country Opinion Survey in Seychelles assists the World Bank Group (WBG) in better understanding how stakeholders in Seychelles perceive the WBG. It provides the WBG with systematic feedback from national and local governments, multilateral and bilateral agencies, media, academia, the private sector, and civil society in Seychelles on: (1) their views regarding the general environment in Seychelles; (2) their overall attitudes toward the WBG in Seychelles; (3) overall impressions of the WBG’s effectiveness and results, knowledge work and activities, and communication and information sharing in Seychelles; and (4) their perceptions of the WBG’s future role in Seychelles.Publication The World Bank Group in Georgia, 2014-23(Washington, DC: World Bank, 2025-07-30)This Country Program Evaluation assesses the performance and effectiveness of the World Bank Group’s support to Georgia in achieving the country’s development objectives. In the decade leading up to the evaluation period, Georgia pursued economic reforms to attract critical investments for becoming a regional trade and transport hub. Ambitious economic reforms went hand in hand with efforts to improve human development and strengthening social protection systems. Growing geopolitical tensions and internal political polarization have challenged Georgia’s reform progress in recent years. The Bank Group’s strategy adapted well to Georgia’s development needs and was well coordinated with other development partners. It successfully employed a range of instruments to help increase competitiveness, growth, and job creation, and effectively contributed to improved infrastructure and increased trade by using programmatic and innovative approaches. The Bank Group’s regular investments in analytical work and the switch to results-based programmatic support helped improve the efficiency and effectiveness of education and health care systems. The IEG offers the following lessons based on the evidence and analysis in the Country Program Evaluation: (i) Prioritizing Bank Group support around the move towards deeper regional integration was an effective anchor for key economic reforms for economic convergence. (ii) Pursuing a selective and adaptive approach in a country with high implementation capacity and institutions, strong coordination among development partners, and access to a wide range of external resources can allow the Bank Group to exercise significant influence in areas of comparative advantage and global expertise. (iii) A stronger focus on outcome-based programmatic approaches helped to build local capacity and crowd-in partner financing.Publication FY 2025 China Country Opinion Survey Report(Washington, DC: World Bank, 2025-08-04)The Country Opinion Survey in China assists the World Bank Group (WBG) in better understanding how stakeholders in China perceive the WBG. It provides the WBG with systematic feedback from national and local governments, multilateral/bilateral agencies, media, academia, the private sector, and civil society in China on 1) their views regarding the general environment in China; 2) their overall attitudes toward the WBG in China; 3) overall impressions of the WBG’s effectiveness and results, knowledge work and activities, and communication and information sharing in China; and 4) their perceptions of the WBG’s future role in China.Publication The World Bank Group in Tanzania, Fiscal Years 2012–22(Washington, DC: World Bank, 2025-07-22)This evaluation assesses the relevance and effectiveness of the World Bank Group's support to Tanzania between Fiscal Years 2012 and 2022. Over the past decade, Tanzania has experienced resilient growth, with an average annual per capita GDP increase of 2.2%. However, poverty remains widespread and slow to decline, underscoring the need for more inclusive growth. The report examines the Bank Group's strategic and operational approaches during this period, which were aligned with Tanzania's development priorities and focused on industrialization, human development, and public sector reforms. The evaluation includes thematic chapters on the Bank Group's support for private sector-led growth and spatial transformation, as well as lessons to inform future support to the country.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.