Implementing performance-based aid in Africa: the country policy and institutional assessment

Abstract

Unlike most other donors, IDA bases its country envelopes on a formal performance assessment, the Country Policy and Institutional Assessment (CPIA). This paper takes the CPIA instrument as given. It outlines the process of estimating country ratings with special reference to the (Sub-Saharan) Africa Region, and addresses a number of questions concerning (a) how the CPIA compares with other ratings, (b) the relationship between the CPIA and country performance, and (c) the likely errors of CPIA-type ratings and their implications for disclosure and performance-based allocation of development assistance. CPIA estimates are broadly correlated with the rankings of a number of other indicators, including the Kaufmann, Kraay and Zoido-Lobaton (KKZ) governance indicators and the Heritage Foundation's Economic Freedom Indicator. The closest association is found with the similar, but independently estimated, performance index of the African Development Bank. Comparing African countries as a group with others, we found no evidence of an Africa bias, either positive or negative, relative to other indicators. CPIA ratings have been quite strongly associated with medium-run growth performance. In Africa, over 1996-2002, high-rated CPIA countries typically grew 3-4 percent per year more than lower-rated countries. Countries increasing their CPIA ratings over a sustained period tend to experience a growth boost and those seeing a large decline in ratings tend to see a growth slowdown. The results do not conclusively prove causality. However, country-level changes in CPIA ratings are not associated with recent growth, suggesting that the CPIA score is not simply a mirror of observed performance.