In line with all other major international development finance institutions, member countries brought the performance-based allocation system (PBAS) to IFAD in 2003. The main purpose of the PBAS was twofold:
Prior to the PBAS, IFAD allocated its resources for financing country programmes on the basis of perceived strategic opportunities for rural poverty reduction, somehow weighted by the absorptive capacity of countries. There was an understanding that this system could lead to country allocations that were imbalanced and unpredictable, and that it was insufficiently conducive to the development effectiveness of IFAD.
The performance-based allocation system (PBAS) is rules-based using a formula that incorporates measures of country need and country performance. This allocates IFAD’s loan and country grant resources to country programmes on the basis of country performance (the broad policy framework, rural development policy and portfolio performance), and need, (population and per capita gross national income-GNI. Under the PBAS, annual resource allocations are made in three-year cycles. Uniquely, IFAD’s approach includes special provision for rural sector performance, which is weighted heavily in the overall assessment of country policies and institutions. The rural sector performance review has given IFAD the basis for policy dialogue and for emphasizing the rural and agricultural focus of IFAD.
The first PBAS-based allocation was made in 2004 for the three-year period 2005-2007. At the time it was also noted that the PBAS would continue to evolve to reflect operational experience. The initial design would be a starting pointfor an ongoing process of refinement relative to the methodology of assessment and the weighting of the separate factors of the formula.
In 2005, a series of technical issues were identified that limited the effective implementation of the system. For example, it was noted that the large variations in population between IFAD’s Member States had resulted in large differences in country scores and allocations, principally due to population levels and making it necessary to introduce maximum and minimum allocations. This reduced the system’s responsiveness to changes in performance indicators. In April 2006 it was therefore agreed to reduce the influence of population in the formula. The new level was regarded as a “point of balance” where population still carried significant influence as a determinant of “needs” in the formula but at the same time allowed performance and GNI per capita to have a strong role.
Secondly, following the Seventh Replenishment discussions that were recently successfully concluded it was also agreed that fixed regional allocations would no longer apply. That is IFAD regions would no longer received pre-determined allocations of funds for lending and grants. Nevertheless, the “uniform” system would need to reflect priorities in terms of the regional distribution of development assistance and IFAD would continue to direct at least the current percentage share of resources to sub-Saharan Africa, provided that the performance of individual countries warrants it. This approach is being applied in the 2007-09 replenishment period.