Output-based aid in infrastructure : a tool for reducing the impact of corruption

Corruption in infrastructure leads to big losses. Estimates of the share of construction spending lost to bribe payments around the world range from 5 percent to more than 20 percent. 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 is a tool that can help achieve these goals. When corruption takes the form of theft of construction materials, this act causes economic damage mostly through its effect on access to improved infrastructure services.
OBA approaches advocate explicit, performance-based subsidies to help deliver basic services where policy concerns justify public funding to complement or replace user fees. Subsidies are targeted to the poor and channelled through service providers that are paid largely only after delivering agreed services. The aim is to improve the efficiency of public funding through better targeting and greater accountability. Traditional approaches use a competitive process to select construction contractors and in some cases service providers. OBA approaches base the competition on the lowest subsidy required to deliver prespecified outputs that are relatively easy to measure and of tangible benefit to the user. By prespecification of the output at a given price and disbursing payment only after delivery is verified, they help ensure that corruption does not derail delivery of expected results. In contrast with inputs, outputs are by definition relatively easy for everyone to monitor. Results are therefore transparent and measurable.