Aid donors met to discuss how to change the rules; here is what happened
Aid and Development

Aid donors met to discuss how to change the rules; here is what happened

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This week, members of the OECD Development Assistance Committee (DAC), the organisation that tracks official development assistance (ODA) and acts as a think tank on development finance policy, met at their High-Level Meeting. On the agenda were discussions about the mandate of the DAC, what its role should be in the era of the new Sustainable Development Goals, and most debated, decisions on potential rule changes to what counts as aid. As the only financial resource that is purely focused on development and poverty reduction, ODA is a precious resource that needs to be protected. ONE has been pushing to ensure that the rules governing ODA’s use are protected, and are not widened for short-term political outcomes, or lead to inflated aid.

Since 2014, the DAC has embarked on a program of modernising the ODA definition, to make it more relevant for current ways of working. This included looking at the way loans counted as aid, the rules around refugee costs spent in donor countries, peace and security costs, and how to count instruments used to incentivise private sector finance. Many decisions have been made over the past couple of years, but this year’s High-Level Meeting has perhaps been the most-watched, due to the discussion of contentious proposals around private sector instruments, as well as a request from the UK to get an exemption to spend aid in its overseas territories.

Any changes to the ODA definition, however, have to be agreed by consensus by all 30 members of the OECD DAC – something that has been both a blessing and a curse in negotiations, as well as a factor that keeps the DAC from making any hasty decisions. These are the 3 most noteworthy outcomes from the DAC meetings that we’ve been watching for.

  1. Clearer rules on ‘in-donor refugee costs’ – As ONE has highlighted in the past two DATA Reports, in-donor refugee costs – the money which donor countries spend to support refugees in donor countries – has hugely spiked in the past 2 years. In 2016, 11% of total aid went on these costs. Countries like Germany and Italy spent more on refugees at home, than they give in aid to Africa. ONE, along with other NGOs, have long been calling for these costs to be excluded from aid, as they do not contribute to poverty reduction, or flow to developing countries. Of course, countries need to support refugees fully, but not by dipping into aid budgets. While the DAC members will not agree to exclude these costs, they have agreed to clarify what costs can be counted, which should hopefully improve the consistency and transparency of these costs and allow comparison between donors. Previously the rules were vague and donors interpreted them in many ways. There is still room for improvement though, for example, members are currently allowed to report estimates rather than actual costs. The DAC should continue to work to tighten these rules, but this is good first step 
  2. No decision on private sector instruments, but one to watch – One of the trickiest negotiations in the DAC so far has been on private sector instruments (PSI). Recognizing that private finance will be critical to achieving the SDGs, donors can use aid to leverage and incentivise private investment in developing countries. There are also commercial reasons why donor countries will partner with the private sector, for instance, to support national businesses working abroad, and it’s important that these two priorities are distinguished. The DAC has been working on guidelines and methodology to clarify which financial tools (guarantees, equity, credit, etc) and how much ODA credit should be counted. Unfortunately, there has been a lot of division among DAC members on these questions, and it has not been possible to reach a decision. Going forward, the DAC has asked donors to continue to report this type of funding as ODA as long as it is ‘development-oriented’, as the DAC continues work to finalise the guidelines. While it’s good that the DAC didn’t reach a bad compromise, it’s unfortunate that donors can continue to self-assess what is development-oriented in the meantime without sufficient safeguards. It is crucial that the DAC develop principles which are clear and more explicit, and which accurately account for the additionality of assistance. 
  3. Plans to review country graduation criteria, particularly for small island states – Not previously part of the DAC’s modernisation agenda, the UK brought to the forefront a new issue in recent months following the devastating hurricanes in the Caribbean this summer. While the countries of Anguilla, Turks and Caicos and the British Virgin Islands were completely decimated, their higher national income means that they aren’t eligible for ODA. The UK raised and opened up an important conversation with the DAC around how countries who previously ‘graduated’ from development assistance may need to become eligible once again, particularly following natural disasters. The DAC has agreed to establish a process to review these types of situations in the future, and we will monitor these proposals.

While the DAC’s years’ long efforts to modernise the ODA definition aren’t officially closed out, there is more clarity on reporting going forward. We will continue to monitor the discussions on private sector instruments and track spending to ensure that the rules prioritise spending in the poorest countries and maximise development outcomes.

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