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The beauty of harmonization

Developing countries spend about $100 million a year on transaction costs to do business with the World Bank, according to an estimate by that institution. Costs grow when each country needs to borrow money from several multilateral institutions for a single development project. A global harmonization effort aims to reduce these transaction costs for borrowing countries.

In terms of harmonization, bilateral organizations and multilateral development banks (MDBs) aim to reduce borrower transaction costs at the project level by improving service delivery and adopting standards for procurement, financial management, evaluation procedures, development effectiveness, environment issues and policy work.

Donors and borrowing countries desire to work together toward common formats, content and frequency for a single periodic report per project that meets the needs of all borrowers, according to the Rome Declaration on Harmonization (Annex A). Donors currently fund over 60,000 development projects, and multiple reports required by each donor for each activity can overwhelm the capacity of borrowing countries to meet the requirements.

Further convergence is needed to eliminate duplication in assessing, documenting and monitoring environmental and social impacts in the projects that donors jointly finance. To better synchronize the consultation and disclosure processes associated with assessing such impacts, bilateral organizations and MDBs have identified the need to harmonize with each other and with borrowing countries’ systems and procedures that meet international good practice standards.

Pilot countries where the IDB and other institutions are actively promoting harmonization include Nicaragua and Honduras, where consultative group meetings are held periodically. In Bolivia, a harmonization expert has been hired under a bilateral technical cooperation project. In technical areas, efforts are focused on statistics, poverty reduction strategies and an initiative for  debt relief  known as the  Heavily Indebted Poor Countries Initiative (HIPC).

Harmonization is just one piece in a puzzle to improve  development effectiveness  and management for results. The IDB recently hosted a meeting of the  MDB Working Group on Managing for Results, in which MDBs addressed the importance of promoting a harmonized approach to managing for development results.

Providing support for countries’ analytic work, monitoring and evaluation will strengthen governments’ ability to take ownership of development results and to ensure that they are producing the most relevant benefits.

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