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Successful modernization of aid

17 December 2014
by Guest author
The relative weight of ODA in external financing to developing countries, 2000-11. Click to see full size.

The relative weight of ODA in external financing to developing countries, 2000-11. Click to see full size.

Today’s post is from Erik Solheim, Chair of the OECD Development Assistance Committee (DAC)

The donor countries representing well above 90% of all global development aid agreed in the Development Assistance Committee of the OECD on December 16 on a set of measures to modernize official development assistance, ODA. We will build on the historic success of aid and make it fit for the future. The goal is to provide more and better aid and support the global process of financing the post-2015 sustainable development goals.

The huge development progress over the past decades has made the world a better place to live than at any other point in human history. Extreme poverty, child mortality and malaria have been halved. The majority of people on the planet are better educated and live longer and healthier lives than ever before. But progress has been uneven. Development in states at war and in the poorest nations has been much slower. Conflict has even reversed development in some nations by 20-30 years. Extreme poverty will increasingly be found in weak states and in vulnerable groups such as indigenous communities, small scale farmers, ethnic and religious minorities, and the disabled. The majority of the very poor are women and they are living in rural areas. Global economic growth alone will not get all these people out of poverty. Specific policies targeting the most vulnerable groups and directing more resources to the least developed countries will be required to end poverty.

This is why the Development Assistance Committee has agreed to provide more development assistance to the least developed countries and other nations most in need, including small island states, land-locked countries and fragile states and nations in conflict. Those who have committed have reconfirmed the UN targets of 0.7% of national income for development assistance and at least 0.15% for the least developed countries. New agreed rules for concessional loans will give the poorest nations better access to this important source of development finance. The Development Assistance Committee agreed to modernise the reporting of concessional loans to encourage more resources on softer terms to the poorest nations while putting in place safeguards to ensure debt sustainability. The result of all this will be more and better development assistance to the poorest nations. More grants for schools and hospitals. More loans for railways, manufacturing plants and clean energy.

Development assistance is an important source of external funds for the least developed countries. But the big drivers of global development are private finances and domestic resources. Development assistance reached a record high of $135 billion last year, but foreign direct investments are almost 5 times greater. By far the biggest share of the money spent on education in the developing world comes from domestic resources. A three letter word for development is “tax”. A 1% increase in developing country tax revenues would mobilise twice as much for health, education and roads as total development assistance.

But development assistance can have a big impact on global sustainable development if used smarter to mobilize more private investments and domestic resources. $20 trillion will be invested annually across the world in the coming decades. More of this should be directed to green growth and development.

As our contributions to the global process of financing sustainable development, the OECD Development Assistance Committee will continue to develop new statistical measures to account for and mobilise more private finances. A new statistical tool measuring total official support for sustainable development will complement, not replace, official development assistance data. The purpose is to use public funds to mobilise more of those $20 trillion for green growth and development by making better use of the available financial instruments such as guarantees and equity investments. This work will be refined leading up to the third international conference on financing for development in Addis Ababa. We encourage all nations, private sector and civil society organization to work with us.

Better rules for development assistance are only relevant if it reduces poverty and has a real impact on the life of real people. More and better development assistance will help us towards eradication of extreme poverty by 2030. Our new broader measure is an additional contribution to the UN led process of shaping the sustainable development agenda and ending poverty while protecting the planet.

Useful links

DAC High-level Meeting December 2014, agenda and documents

OECD Development Co-operation Report 2014: Mobilising Resources for Sustainable Development.

One Response leave one →
  1. lily hidalgo permalink
    December 21, 2014

    We all would like to be hopeful and optimistic that domestic resources aka taxes among developing countries especially for education & health are among the development priorities (expected to liberate the most vulnerable & marginalized esp the youth from the shackles of poverty). Certainly “development” is not simply a matter of funding & everything else are expected to fall into place. As they say, the devil is in the details. Lest we forget: are the education/health budgets properly allocated in terms of priority requirements/needs? what are the bases for the sector’s budget prioritization? is the education system/ curricula relevant & responsive to the human resources requirements for the country’s development in terms of inclusive economic growth? do teachers/ health workers have the corresponding appropriate skills? do schools have the equipments for students to acquire & develop skills required in the labour market? do health institutions have the necessary equipments? do schools adequately prepare the youth including reinforcing values re their obligations as productive citizens & rooting out bias against blue collar jobs? are appropriations equitably distributed among metropolitan/ highly urbanized areas vis-a-vis rural areas? Who is to account for delivering on the results/outcomes on these human resources investments and how? proxy indicators like employment/morbidity/ mortality etc rates a decade hence? increases in tax base? etc? Are taxes collected expected to increase proportionate with the population growth rate?

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