Contracting for Public Services : Output-based Aid and Its Applications

Access to good, reliable public services is critical for the poor in developing countries if they are to rise out of poverty. Safe water and sanitation, modern energy and communications, good-quality basic education and health services--all contribute directly to individual well-being, and all improve economic opportunities for low-income households. The primary challenge now is to ensure that aid- and tax-funded spending reaches the poor, that the services this money finances respond to their needs and preferences, that these services are delivered efficiently, and that public funds are used in a way that leverages private financing of service delivery. The cases gathered in this report tell of efforts to improve the delivery of services by contracting out their provision and linking the payment of subsidies to the delivery of services to targeted groups--illustrating aspects of an approach that the authors call "output-based aid." The cases highlight varied attempts to sharpen the focus on the objectives of aid and public spending, to improve incentives for efficiency and innovation, to expand opportunities for mobilizing private financing to meet social objectives, and to enhance accountability in the use of pubic resources.