ECONOMY
seeking more ways to engage (aligned with Country Partnership Strategies) to help them achieve their development goals within the SCR resource envelope. This has led to the development of the OPEC Fund’s Country Policy and Institutional Assessment (CPIA) as a key input to the Performance Based Allocation (PBA) system (see below). Building resilience to the challenges that FSDS face includes access to more financial support and strengthening capacity through technical assistance grants and, where appropriate, innovative financial solutions to better manage SCR partner countries’ respective development strategies. Prior to the COVID-19 pandemic, FSDSs faced significant constraints in mobilizing sufficient resources to build the necessary productive resources and infrastructure they need for sustainability, on top of financing the costs of disaster recovery. In recognition of the need to mobilize sufficient resources, the OPEC Fund has a long-standing commitment to support FSDS development through innovative co-financing mechanisms, and more recently, stand-alone financing for program loans. This is particularly relevant for small economies (such as Botswana) given their vulnerabilities. SCR Strategy: Country policy and institutional assessment & performance based allocation system for FSDS Part of the solution in engaging more dynamically is provided by using the results generated by the OPEC Fund’s Country Policy and Institutional Assessment (CPIA) as a key input to the Performance Based Allocation (PBA) system. In essence, the CPIA and PBA system provide a solid foundation to help guide the OPEC Fund’s engagement with FSDSs that are facing difficult and complex situations in a manner tailored to their respective environments. In principle, the CPIA is an annual measurement of the quality of a country’s policies and institutions based on publicly available information and indicators, also providing insights into fragility and weakness. Many FSDSs have high levels of policy, institutional, and
social fragility, as identified by the most recent CPIA. Overall, the CPIA provides a robust methodology for assessing SCR countries’ policies and institutions – the key tools that help support economic development. The CPIA country scores feed into the PBA system, which takes into account population size, GDP per capita, and other relevant criteria. Based on country needs, the PBA system allocates SCR resources to help determine the size of the funding envelopes over a three
case. The primary purpose of the PBA system is to ensure that the OPEC Fund’s strategic and lending focus in FSDS countries is adapted and tailored to the diverse challenges faced by these countries. This is achieved by recognizing the nature and severity of development challenges, as well as the unique characteristics of each FSDS based on population size, geography and remoteness. This allows for the most appropriate potential level of funding per SCR partner country to address their specific challenges. Moreover, the outputs of the CPIA and PBA system enhance the OPEC Fund’s engagement with its smallest and most vulnerable partner countries by providing a fairer share of SCR financial resources, thereby helping to strengthen partnerships. Longer-term lending and support Despite SCR partner countries’ large financing needs, Multilateral Development Banks (MDBs) have not been able to provide full support because of various challenges (such as weak capacity, COVID-19, and disruptions from the war in Ukraine). The PBA system provides greater certainty that a systematic allocation of funds is available over the three-year business plan cycle to help meet these needs – certainty that was missing previously, which undermined the OPEC Fund’s longer term commitment to building stronger partnerships with SCR partner countries. With the expectation that the SCR financial resource envelope will rise in line with the forecast increase in OCR net income, the OPEC Fund now has the ability to engage more actively, underpinned by a solid PBA framework over the longer term. In turn, this should help drive a virtuous circle, whereby more consistent and planned lending envelopes will enable more partnerships to be developed, which in turn will leverage more funds that will generate higher levels of investment into SCR partner countries – stimulating resilient and sustainable growth, poverty reduction, and overall development effectiveness. This way a vicious circle is being transformed into a virtuous circle.
“The OPEC Fund has a long-standing commitment to support FSDS development through innovative co-financing mechanisms, and more recently, stand- alone financing for program loans.”
year period (in-line with the OPEC Fund’s rolling three year Business Plans). The PBA system provides welcome additional help for FSDS to overcome the challenges they face, particularly in the post-COVID environment. Moreover, the CPIA and PBA system ensures sound prioritization, selectivity, consistency, and suitability of financial and Grant support as and where needed. Those FSDS countries that are most in need, as recognized by the CPIA results, tend to receive a higher allocation of financial resources through the PBA system than would otherwise be the
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