Increasing access to basicinfrastructure, and social services is critical to reducingpoverty, and achieving the Millennium Development Goals(MDGs). However, increasing access is a challenge because ofthe gap between what it costs to deliver a desired level ofservice, and what can be funded through user charges.Subsidies have often played a role in funding this gap, fora variety of socio-economic reasons. However, given thepolitical commitment by a number of countries to increaseaid flows, but at the same time the mounting concerns of aideffectiveness, it is critical that subsidies be linked tothe actual delivery of services, or "outputs." Oneway to do this is through Output-Based aid (OBA), a strategyfor using explicit performance-based subsidies to deliverbasic services-such as water, sanitation, electricity,transport, telecommunications, education, and healthcare-where policy concerns would justify public funding tocomplement, or replace user fees. OBA can help improve aideffectiveness by: increasing accountability; improvingtransparency; increasing value for money; and, reducingeconomic distortions.
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