Public Sector Governance and Accountability Series: Budgeting and ...

Structural and Design Issues
The main design issues of an MDTF are as follows:
Budgeting in Postconflict Countries 441
An MDTF must fulfill both a fiduciary and an executive function. The
legal, accounting, disbursement, and reporting provisions required for
the fiduciary function have been well defined through prior experience.
The effective exercise of the executive function requires, in addition,
meeting the key strategic criteria previously listed.
Incentives must exist for individual donors to join an MDTF, including
an MDTF design that gives them comfort that their aid goes for priority
purposes while precluding earmarking of the aid, which would defeat the
purpose of a budget support mechanism. Although all donor contributions
must be commingled in a common pool, donors’ preferences can be
explicitly acknowledged, and expenditures in the broad categories can be
regularly reported. This procedure permits each donor to claim that its
money has gone to finance its preferred uses.
MDTF governance arrangements must provide for systematic consultation
with and reporting to the contributing donors.
Large strategic projects, humanitarian aid, or security-related programs,
such as demining, need not be—and usually are not—financed through
an MDTF. Large projects will normally carry their own implementation
arrangements, and to finance humanitarian and security programs, separate
dedicated trust funds can be created.
All other reconstruction and recovery activities—including recurrent
costs—should be financed under the MDTF. The main advantage of an
umbrella fund is the closer link with the recipient country’s budget and,
hence, the possibility of a robust dialogue on fiscal and development
policy. In any case, as noted earlier, what is to be avoided is fragmentation
of funding vehicles, especially between financing of recurrent costs and
financing of investments.
Organizational and Procedural Issues
Among the organizational and procedural issues, the main ones are as follows:
Time is of the essence for aid interventions in postconflict situations, and
a practical compromise is needed between the two extremes of waiting
until all contributions are deposited and starting MDTF operations as
soon as the first pledges are made.