Why the latest aid figures mean we must think bigger about development

one orgEloise Todd, Global Policy Director, the ONE Campaign

The world is changing rapidly. With conflicts continuing to erupt, the amount of vulnerable people in the world is increasing, as is the complexity and cost of the response needed to help people survive extreme poverty and danger.

The impact of this on aid budgets is a big concern. Each April marks the annual publication of the OECD DAC’s latest aid figures revealing how much money aid-giving countries have invested in development the year before and how this money was allocated.

In most years trends in aid investments are straightforward to predict, but with the refugee crisis prompting countries to raid their aid budgets to cover expenses at home, we were braced for bad news. However, at first glance, the overall picture looks positive – aid grew by almost 2% even when domestic refugee costs are discounted. The new figures also show that total aid to the least developed countries (LDCs) finally increased last year, rising by 5.8%.

LDCs rely on aid for a large portion of their budget in order to provide even the most essential services. After several years of aid to the poorest countries declining, this rebound shows the first signs of hope that countries are investing in the places and people that need it most. Countries such as Canada, Poland and the Slovak Republic saw their contributions to LDCs increase by more than 25%.

Donor countries’ own refugee costs more than doubled last year – amounting to $12 billion. European countries are absolutely right to be providing the funds needed to support refugees, but these funds should be additional to their overseas aid budgets. Whether the poorest and most vulnerable people live in cities or refugee camps, they deserve protection and the opportunity to live a productive life. Both development and humanitarian needs are urgent, and increasing, and the last thing governments should be doing is claiming their domestic expenses from the precious pot of funds for the world’s poorest people overseas.

International development is our best long-term bet in foreign policy – lifting people out of poverty in turn creates the human security and economic prosperity needed that can help stop countries sliding into crisis. As well as being the right thing to do, fighting poverty is an insurance policy for stability across the developing world. The long-term benefits far outweigh the short-term costs. As Bono said earlier this week after visiting refugee camps in Africa and the Middle East “It is less expensive to invest in stability than to confront instability.”

ONE and many others have called for 50% of overseas aid budgets to be allocated to LDCs and for all aid to be focused on the poorest people, wherever they are – in poor countries or at Europe’s shores..

No deadly trade off should be made by diverting funds from one to cover the cost of the other. Rich countries can and must do both.

(Note: Net ODA excludes bilateral debt relief, and includes both bilateral and multilateral flows. SSA and LDC imputed multilateral flows in 2015 are estimated by ONE).

Useful links

Download ODA figures in Excel

How the world reacted to the latest aid data

oda figures 2014Aid is one of those topics that always seems to attract controversy. So, it was no surprise that when the OECD released the latest data on Official Development Assistance (ODA) to developing countries last week, it attracted a flurry of comment and discussion – some positive, some negative.

On the plus side, many news reports noted that aid had stayed at close to historic levels in 2014, around $135 billion – a performance OECD Secretary-General Angel Gurría saw as encouraging “at a time when donor countries are still emerging from the toughest economic crisis of our lifetime”.

Less encouraging, a smaller share of that money made its way to the world’s poorest or least developed countries (LDCs). That looks to be part of a trend: “The decline in ODA to LDCs is something that we’ve been worried about for a couple of years,” the OECD’s Yasmin Ahmad said in The Guardian.

This shift away from supporting poorer countries was described as “shocking,” by ONE, an international advocacy organisation. “Alarm bells should be ringing,” it added. “In 2014, aid to the very poorest countries was cut by $128 million every week – enough to vaccinate 6 million children.”

There was concern, too, from Oxfam International. It pointed out that while total ODA appeared to have remained stable over the past two years ($135.2 billion in 2014 vs. $135.1 billion in 2013), this actually represented a fall of 0.5% in real terms.

Oxfam also argued that – with some exceptions – wealthy countries were still failing to meet a commitment to give 0.7% of their gross national income (GNI) in aid. “Governments first promised to deliver 0.7% of their national income to support poor countries when Richard Nixon was President of America and the Beatles were topping the charts,” said Claire Godfrey, Oxfam’s Senior Policy Advisor, said. “In the 45 years since only a handful of countries have delivered on this promise.”

Away from the headline story, much of the reporting focused on the performance of individual countries. Here, again, the picture was mixed.

Overall, 13 of the OECD’s Development Assistance Committee members increased ODA in 2014 while 15 did not. Countries in this latter group included Australia and Canada, where Stephen Brown of the University of Ottawa warned that “Canadian claims to leadership in international development are contradicted by our relative stinginess,” The Canadian Press reported. However, a government spokesman pointed out that Canada had increased its spending on humanitarian aid – funds distributed after natural disasters and so on – by 62% last year.

Other countries that cut back on ODA last year included France and Ireland. There, The Irish Times quoted Oxfam’s Jim Clarken as saying that “the poorest people on our planet need more ambitious action”. However, it also quoted a government spokesman as saying that the aid budget had been protected as much as possible “in the most difficult of economic circumstances,” and that Ireland remained committed to reaching the 0.7% of GNI target.

What about countries that raised their ODA? The United Arab Emirates proudly announced that it was now the “most generous” donor in the world, with ODA reaching 1.17% of GNI in 2014. “We will continue to reinforce our position as a global hub for humanitarian relief for all those in need of our help,” Prime Minister Sheikh Mohammed bin Rashid Al Maktoum was quoted as saying.

There was an impressive showing, too, from the United Kingdom. “While most countries cut foreign aid, ours goes UP,” a headline in The Daily Mail declared. In the report, Oxfam’s Max Lawson contrasted Britain’s record with that of other countries: “Aid saves lives. What we’re seeing is shameful indifference on the part of many of the world’s richest nations.” Still, not everyone was happy. The newspaper also quoted Conservative MP Peter Bone, who said that “when we have seen cuts at home, people find it very strange that we can give away so many billions of pounds a year.”

Useful links

Development aid stable in 2014 but flows to poorest countries still falling (OECD.org)

Detailed summary of 2014 ODA and complete data tables (pdfs)

OECD Insights: From Aid to Development

A clearer picture of climate-related development finance

Climate finance
Climate-related development  finance totals $37 bn

Today’s post is by Stephanie Ockenden of the OECD Development Co-operation Directorate

The world will need more and better targeted financing to meet the challenges of global development post-2015. This means taking important decisions not only on what qualifies as official development assistance (ODA), but also on how those flows can be most strategically used. The Ministers of the OECD Development Assistance Committee (DAC) are in discussions today and tomorrow at the DAC High Level Meeting to redefine the terms for determining what qualifies as ODA.

But these terms are just part of that package of what the DAC is putting together to contribute to successful outcomes at the Third International Conference on Financing for Development in Addis Ababa, 13-16 July 2015, the UN General Assembly Post-Millennium Development Goals (MDG) Review Summit in New York in September 2015, and the United Nations Climate Conference (COP21) in Paris in December 2015.

An equally important objective is to provide a better picture of the total resources available for global sustainable development, including for action on climate change. It is now widely understood that climate change and development are intrinsically linked. Achieving an efficient and effective allocation of public finance to simultaneously support good development and climate change outcomes will be critical to ensuring that the most vulnerable get the targeted attention they need.

Robust statistics on climate-related development finance can facilitate better decision making, in part through improved co-ordination and priority setting. Consistent, comparable and transparent statistics on climate-related development finance will, in turn, support parties in their monitoring and reporting to deliver greater accountability and help build trust under the UN Framework Convention on Climate Change.

As an important step in this direction, the DAC, in collaboration with the multilateral development banks and other international organisations, has presented – for the first time ever – an integrated picture of bilateral and multilateral development finance flows targeting climate change objectives in 2013.

By adding data on the multilateral flows, the DAC promotes transparency and makes a wealth of data publically available online, including information on over 7,000 development finance activities in 2013, contributing to over USD 37 billion of climate-related development finance.

Energy, transport and water received over two-thirds of climate-related development finance, according to the statistics. On the regional level, Asia is the largest recipient of climate-related development flows, at around 40%, and Africa is the second largest, at 30%. The data show that in 2013, adaptation receives a significant share of total climate-related flows (39% when activities that are designed to tackle both mitigation and adaptation are included). Measured in the same way, mitigation receives 74% of the total flows (with 13% also targeting adaptation). A larger share of the bilateral development assistance portfolio is dedicated to adaptation, as compared to the multilateral portfolio.

Among other advantages, this integrated dataset avoids double counting and provides consistency across countries using standardized definitions and measurements. Going forward, the DAC will continue to work in collaboration with other partners to further improve the quality, coverage, communication and use of environmental development data.

This video explains the treatment of multilateral climate-related flows in DAC statistics:

Useful links

OECD DAC Climate Change External Development Finance Statistics

OECD Statistics on External Development Finance Targeting Environmental Objectives Including the Rio Conventions

Increasing the transparency of climate-related development finance flows: publishing detail on over 7,000 projects in 2013 Stephanie Ockenden on the Climate Funds Update blog

Development finance: hundreds of billions more available

DCR 2014Today sees the launch of the OECD Development Co-operation Report 2014: Mobilising Resources for Sustainable Development. In today’s post, Erik Solheim, Chair of the OECD Development Assistance Committee (DAC) argues that hundreds of billions more could potentially be mobilized for poverty alleviation and sustainable development over and above the $134 billion in development assistance donated last year.

The enormous development progress seen over the past 20 years has been unprecedented in human history. Extreme poverty has been halved and 600 million people were brought out of poverty in China alone. The mortality rate for children under age five has been almost halved, saving 17,000 children every day. Economic growth and better government policies explain much of the progress. But official development assistance (ODA) has also been a great success and contributed to global improvements. However, much more and better financing will be required to eradicate extreme poverty and promote green growth.

Official Development Assistance is increasing and has never been higher. The main donors in the OECD Development Assistance Committee increased development assistance by 6.1% last year, reaching an all-time high of 134.8 billion dollars. Additionally, emerging and increasingly important donors like China, Turkey and Arab nations provided around 15 billion dollars. On top of that, Development banks such as the World Bank and Asian and African Development Banks, granted 40 billion dollars in more market-based loans not considered development assistance.

The Bill & Melinda Gates Foundation and other private foundations provided around 30 billion for development, while organizations like the Red Cross and World Vision International raised more than 30 billion dollars from the public. Remittances sent home to their families by overseas workers added 350 billion dollars to the flow of finances into developing countries. Foreign direct investments, by far the largest source of external finances to developing countries, amounted to 600 billion dollars.

Together, this adds up to more than one thousand billion dollars of external financing for poverty reduction, schools, hospitals, infrastructure and jobs in developing countries.

Several additional thousands of billions of dollars could potentially be made available for poverty eradication and green growth, and development assistance can help unlock these resources. Domestic resources such as taxes are the most important source of financing for developing, even in many of the poorest countries. For example, more than 1300 billion dollars is spent on education in developing countries every year but only 15 billion of this comes from development assistance.

Yet, while OECD countries collect on average 34% of their gross domestic product as tax, developing countries achieve only half this rate. The combined GDP of the developing world is over 30,000 billion dollars and adding a mere 1% increase in tax mobilization in the developing world could add 300 billion dollars for public services, schools and hospitals. The OECD has rolled out two programmes – Tax for Development and Tax Inspectors without Borders – to improve tax revenue generation. A pilot project assisting Kenya’s tax administration returned an incredible 1650 dollars in taxes for every dollar invested.

About 5000 billion dollars annually will be required for infrastructure investment to green our economies and support a future population of 9 billion people. The private sector will need to finance most of the required investments in roads, railroads, sustainable agriculture and green energy infrastructure. But development assistance can help mobilize such private investments.

Using financial instruments such as public guarantees, development assistance can help alleviate some of the risks associated with investing in developing countries and mobilize more private finances. New and innovative financing mechanisms like social impact bonds only mobilise 2 billion dollars out of the more than 600 billion dollars that the UN estimates potentially could be mobilized. Institutional investors such as pension funds and sovereign wealth funds are sitting on a staggering 83,000 billion dollars in assets in OECD countries alone. But their investments in infrastructure only represent around 1% of those 83,000 billion.

Encouraging leadership, improving the regulatory environment and using development assistance to alleviate risk would make it easier for institutional investors to finance roads and green energy generation in developing countries. An extraordinary 830 billion dollars would be mobilized for infrastructure investments in developing countries just by directing an additional 1% of our wealth and pension funds to this purpose.

Billions could be mobilized for global development by turning bad investments into good investments. Developing countries lose more to illicit capital outflows such as corruption, money laundering and tax evasion than they receive as inflows from aid and private investments. Poor countries are losing as much as one thousand billion dollars a year to illicit capital flows. These billions are invested in crime and lavish lifestyles rather than schools and hospitals. Illicit flows can be stopped by sharing information and streamlining regulations while prosecuting and jailing financial criminals in developed and developing countries alike.

Global development would improve if we directed more investments from public bads to global public goods. The 544 billion dollars spent on fossil fuel subsidies would do more good if invested in green energy. Any portion of the 1700 billions of defence expenditures would provide security and save lives if directed to peace instead of war. Better rules facilitating global trade could benefit everyone and raise global output by more than 400 billion.

Development assistance has been a huge success. But more and better financing for development is needed to eradicate poverty and support green growth. Traditional and emerging providers of development assistance must work with private investors and developing partners to mobilize more private investments and domestic resources.

Useful links

Find out more about the Development Co-operation Report 2014: Mobilising resources for sustainable development here and follow #DCR2014 for live coverage of the launch events on Twitter.

In my view: Half of all ODA should go to the least developed countries

UN logoToday’s post is from Gyan Chandra Acharya, United Nations Under-Secretary-General and High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States. This is one in a series of ‘In my view’ pieces written by prominent authors on issues covered in the Development Co-operation Report 2014: Mobilising resources for sustainable development.

The UN classifies as “least developed countries” those nations that are the bottom of the development ladder from all perspectives. The category was created in recognition of the deep-seated structural constraints these countries face, resulting in low per-capita income, weak human capital and high economic vulnerability. Without help, they are unable to adequately address their development challenges, irrespective of the efforts they may make. Moreover, they are the most exposed to economic shocks and degradation of natural capital, including through climate change. Their need for enhanced and targeted support from the international community is obvious.

Of the 48 least-developed countries, 34 are in Africa, 13 in the Asia-Pacific region, and one, Haiti, in Latin America and the Caribbean. Together they are home to about 900 million people, with a relatively high share of young people among their populations. Over the past decade, the least developed countries have made progress in many of the areas targeted by the Millennium Development Goals (MDGs): they have reduced child and maternal mortality, increased enrolment in primary education, and improved gender equality and women’s empowerment. Yet they still have a very long way to go, and around 50% of their population remain poor.

These countries hold great potential and are rich in human and natural resources – two inseparable characteristics for their people, who live close to nature. A holistic focus on improving health and education, building productive capacity and protecting natural capital would greatly contribute to transforming their economies, enabling them to leapfrog to green economies with relatively few trade-offs.

The least developed countries are and will continue to be — at least in the short and medium term — among the countries most dependant on ODA. This source of development finance constitutes more than 50% of their inflows and public finances and except in the mineral-rich countries, foreign direct investment in these countries is minimal. While they have been gradually widening their domestic resource base through tax reforms, on average across the least developed countries the ratio of government revenues to GDP stands at about 13% and gross domestic savings reach only 15% of GDP. Yet the investment required for poverty eradication and sustainable development is at least 25-30% of GDP over a long period of time.

In my view — which is also shared by the least developed countries — much of this shortfall must be filled by ODA. From both a moral standpoint, and in the interest of the long-term wellbeing of the global community, those that are in danger of slipping should be given foremost priority. It is urgent that the level, quality and focus of ODA to the least developed countries be scaled up and consolidated. Channelling 50% of total ODA to the least developed countries will be an important step in that direction. At the same time, ODA can have a strong leveraging impact on other sources of development finance (Chapter 11).

In this day and age it is unacceptable that so many remain below the poverty line in the least developed countries. We have the means to help them. We need to summon the necessary collective will to do so. The alternative is continued deprivation for a large number of people, which also represents a threat to global peace, security and environmental sustainability.

Useful links

Aid statistics from the OECD

Political Risk and the ODA Definition

TrocaireToday’s post is by Dr Lorna Gold, Head of Policy and Advocacy, Trócaire, the Irish Catholic Agency for World Development and the Irish member of CIDSE and Caritas Internationalis. It is followed by a reply from Erik Solheim, Chair of the OECD Development Assistance Committee, the body that oversees ODA.

Official Development Assistance (ODA) as we know it would appear to be rapidly going out of fashion. Just over ten years ago there was a massive push on to deliver the MDGs and to increase aid levels dramatically to meet those goals. Only three years ago donors gave $136.7 billion in ODA, amounting to 0.32% of their collective Gross National Income. Just three years later, as discussions around the Post-2105 development framework are progressing, aid is falling and many major donors and institutions are now talking as if ODA is history – the future is now to be found in other types of finance.

The complex challenges the world is now facing, it is argued, require a radically different financing model – one which requires a comprehensive approach to financing, embracing all sources of public and private finance available to developing countries. ODA represents a very small percentage of overall financial resources available, amounting to a mere 2.7% of all public and private financial resources available to developing countries in 2010.

The merits of this comprehensive financing discussion are obvious. Civil society has been at the forefront of such a debate for more than a decade through calls for debt cancellation, fair trade and tax justice. It provides a space to discuss the unfair nature of the global financial system and the need to stem illicit flows through money laundering, tax evasion, reforming institutional mechanisms to bring forth information, recovery of stolen assets and so on. As the focus shifts to the domestic tax base, moreover, such a debate means that the inter-connected nature of global investment finance incentivises rich countries to address commensurate measures. For example, a large part of the agenda around domestic resource mobilisation requires the EU to put in place full country-by-country reporting requirements on public record along the lines of the requirements for the banking industry and beyond those for extractive and timber companies.

Whilst this debate is welcome, we cannot afford to lose sight of the ongoing importance of ODA as a key means of addressing extreme poverty. ODA may well represent a very small proportion of overall financial resources available to developing countries, but it still accounts for the largest proportion of public international finance available (58%). Moreover, ODA remains a critical source of funding for the Low Income Countries, many of which are fragile states, amounting to 10% of their GDP. It is a critical financial flow for the most vulnerable countries which are unable to readily generate alternative financial flows.

The timing of the emerging discussions around the redefinition of ODA within the OECD-DAC is particularly concerning. Whilst there are certainly technical merits to tidying up the concept and modernising it, one needs to step back and ask whom the move to change the definition is designed to benefit and what the risks are of opening such a debate up at this global juncture?

The main beneficiaries, so far as I can see, are the growing number of OECD donors who are failing to meet their 0.7% commitment to ODA through enabling them to save face. It may come as a surprise that the vast majority of EU citizens actually want their governments to meet their ODA commitments! Despite austerity measures which have led to severe cut backs on domestic public spending, support for ODA on the whole has remained consistently high between 2007 and 2012, with 83% in favour.  The same governments, however, are facing massive fiscal problems and very unlikely to keep their promise on reaching the UN target without significant sacrifices. There is potentially a political prize to be gained by widening the DAC criteria on technical grounds. It would enable donors to meet the 0.7% target with virtually zero additional finance.

Opening the debate around the definition of ODA, however, entails a number of serious risks at this political juncture. First and foremost, the move to change criteria amongst donor countries will do nothing to engender trust in already fractious multi-lateral processes.  On the contrary, it will only serve to undermine them further. The repeated failure to honour promises on ODA in the context of the Financing for Development process – but now trying to change the goalposts behind closed doors – will be seen as a cynical move on the part of the OECD donors. A debate about redefining criteria is inappropriate until all donors are meeting their current commitment to 0.7% as currently defined.

Secondly, opening the discussion at this point, where vested interests are so dominant, risks undermining the integrity of ODA as a set of financial instruments which have poverty eradication as their primary objective. Certainly ODA is not perfect, but it has specific characteristics which reflect its principal goal in addressing poverty through durable development impacts which go beyond financial transfers. The most disadvantaged LICs who rely on ODA and have limited access to other funding streams would be most at risk of any change.

Thirdly, the broadening of the DAC criteria could significantly undermine public support for development cooperation within OECD countries. ODA is by and large regarded as something which has credibility. In Ireland, this has been a hard won fight which risks being undermined if the criteria are changed to allow for the inclusion of non-poverty related expenditure.

Finally, and perhaps most importantly, engaging in a divisive debate about criteria is a distraction. It diverts energy from the real issues of finding additional sources of finance, potentially creating a false illusion that more is being done on the basis of creative accounting.

There are valid arguments for discussing all the elements of international finance which need to be harnessed in the context of a comprehensive financing framework to meet the post-2015 framework. The imperative to find new sources of finance and address systemic issues, however, should not be used as a means for OECD donors to shirk their responsibility to their ODA commitments. The attempts to change the definition of ODA must be avoided if the critical multilateral processes over the next two years are to have a future.

REPLY FROM ERIK SOLHEIM

Lorna, I could not agree with you more! Development assistance has been a great historical success. It has contributed to the fantastic development success of the last decades, bringing 1 % of humanity out of extreme poverty every year since 1990.

ODA works well and there is no point trying to fix what is not broken. We need more ODA, not less. We should promote the examples of nations who are in the lead. UK reaching 0,7 % this year. Sweden stable at 1 % over many years. Turkey with the biggest increase in development spending in the OECD.

The most important thing is that ODA promotes poverty reduction in the countries that need it the most, and reflect the spirit of the 0.7% target made by donor countries. It may very well be that the definition needs a tidying up.

In this spirit a debate is not dangerous, it is necessary. We may possibly decide to set stricter targets for ODA reaching the least developed countries. We may be better in using ODA catalytically in increasing other sources of development resources. Domestic resource mobilization through taxes can be helped by initiatives like Tax for development.

More importantly, we are working on modernising the way in which we measure and monitor wider development flows than ODA. Everyone acknowledge the importance of private sector flows as well as peace keeping. All development efforts should somehow be accounted for, acknowledged and encouraged. They should be added to ODA, not replace ODA.

We know that designing development programmes to fit the ODA definition can lead to poor outcomes, particularly when it comes to maximising the flow of finance. We must have a system that allows for innovation and the maximisation of funds and that does much better at leveraging additional money out of the private sector. One way to do this is to have broader, transparent measures of development finance from the perspectives of both what effort the donor is making and what the benefit is to the recipient. These would be new measures, separate to ODA.

The DAC will be working on these through 2014 and once we have a more substantive idea of what they look like, we can have a look at whether we need to tidy up ODA.

The rise of the south is probably the most important development in the world over the last couple of decades. It has transformed the power, the politics, the economics, the development.  One result is an increase in south-South cooperation which has changed the world of development finance. We have to have open doors and consult with all relevant partners.  We are working with the UN to produce measures that are not just for DAC donors, but that can support the post-2015 targets.

My view is that the OECD has an a lot to offer in terms of providing robust statistical systems and has an obligation to support the wider international community by making them available. Beyond this, I and many members of the DAC and its Secretariat are out on the road talking with providers of South-South cooperation, China, the Arab donor community, partner countries, civil society and private sector about this project.

We’re also heavily involved in the Global Partnership for Effective Development Co-operation. This forum and the high level meeting in Mexico will be crucial in making the international development system more effective. We’re also working with an Expert Reference Group and sharing our work and many papers on line. Nothing will be behind closed doors!

I will be happy to continue the dialogue – in Dublin or in Paris. Thanks again for your blog!

Erik Solheim

 

Yes, it is time to revisit the concept of Official Development Assistance

Aid recipients?
Aid recipients?

Following this article in The Guardian criticising the way OECD measures aid, today’s post is from Jon Lomoy, Director of the OECD Development Co-operation Directorate (DCD-DAC)

ODA – official development assistance – is an important concept and an important measure. It is, to date, the only systematic means we have of assessing the efforts the ‘traditional’ donors make to support development. But the world is changing, and development finance is changing. In this light, do we need to look at the ODA concept again? I think we agree that the answer is yes.

There are several criticisms of the ODA concept.

Some say that it includes too much – that it counts much more than the money that actually flows into developing country budgets (donor administrative costs, refugee costs, etc.) This is why the OECD has introduced the concept of ‘country programmable aid’, which enables us to identify just how much is directly usable by countries to fund their priorities and programmes.

On the other hand, some feel that ODA cash-flow-based measurement includes too little. Countries make efforts that are not counted as ODA – guarantees, callable capital etc. – that could mobilise significant investment for development by mitigating risk. This is of particular concern today when an increasing number of developing countries need loans, guarantees and equity – rather than grant funding – to boost infrastructure and finance economic growth.

Finally, the ODA concept does not capture the complex and continually evolving interaction between public efforts and the use of market mechanisms.

All this gives rise to tensions between ODA as a measure of development effort by donors, and flows available to developing countries to reduce poverty and promote growth. This is why the Ministers of our DAC member development agencies – when they met in London in December 2012 – gave the OECD-DAC the mandate to take a fresh look at the broader financing concept, as well the concept and role of ODA per se.

This includes, of course, the issue of loans, which is the subject of much debate at the moment – both within the DAC and in the public arena. Loans have always been an important part of development financing – both concessional loans, such as the ones provided by the World Bank’s International Development Association (IDA), and non-concessional loans provided by many bi-lateral and multi-lateral donors, for instance the World Bank’s International Bank for Reconstruction and Development (IBRD).

Today, there is a growing demand for loans from the developing countries. The good news is that countries are growing – and this means they need and can afford to borrow money to fuel their continuing economic growth. This is one reason why this debate has risen to the top of the agenda.

Recently it has also become evident that our members follow different approaches in determining what makes a loan concessional. Some members follow the approach of the multilateral development banks – where only loans that have been subsidized are reported as concessional. Others emphasize the recipients’ perspective, arguing that loans given on more beneficial terms than developing countries could otherwise attain on the market could be considered concessional. As former OECD-DAC Chair Richard Manning pointed out in his 9 April letter to the Financial Times, there is a need to revisit these calculations to ensure that they reflect the current markets terms. It is also important to keep in mind the importance of the public guarantees for institutions providing loans, which address the high-risk factor of some development investments.

As the discussions continue, it is important that these differences – and the data behind them – continue to be publicly known and available for scrutiny. This will stimulate – as we already can see – a welcome and healthy debate. It is fundamental that we continue and deepen these discussions if we’re going to get in place an effective strategy for how to finance the new set of international development goals that will take over from the Millennium Development Goals after 2015.

But with the increasing complexity of development financing, the broadening of the development agenda and the growing diversity among developing countries, that debate needs to be about aid and other sources of financing for development. It is not – and cannot be – a question of either/or. That said, we need to be able to discuss other sources of financing without that discussion being used as – or perceived as – an excuse for donors to walk away from their aid commitments.

There is full agreement among DAC members that as we move towards 2015, we need to settle this debate, prioritizing innovative means to measure and promote development finance. At OECD, we will continue to work with our members and with other key stakeholders – including developing countries, as well as the United Nations, the World Bank, the International Monetary Fund (IMF) and other international financial institutions – to ensure that we have a robust measurement system for development finance in place by 2015.

In this way, we will also ensure that the OECD DAC continues to be a key source of reliable and transparent data on development financing.

Useful links

OECD Aid Statistics

OECD Insights: From Aid to Development