Official Development Assistance (ODA)

Chapter 4 : Official Development Assistance (ODA)

ODA Flow

5. Future prospects

4. Multilateral aid

3. Aid from

non-OECD providers

2. Aid from

other OECD donors

1. Bilateral Aid

This figure compares ODA in 2002, the year donors committed to substantial aid increases, with the 2006 out turn and the level required in 2010 if donors are to meet their current aid pledges.

c. Country programmable aid

Several countries outside the OECD's membership have long played important role in development co-operation; many are increasing the volume of concessional development finance delivered to developing countries.

12 out of the 16 countries that are not members of the OECD officially report their ODA flows to the OECD : Chinese Taipei, Cyprus, Kuwait, Latvia, Liechtenstein, Lithuania, Malta, Romania, the Russian federation, Saudi Arabia, Thailand and the United Arab Emirates. Brazil, China, India ans South Africa do not report their data but have been making important contributions to international development co-operation for many years.

In addition to those bilateral donors, some private donors also deliver significant amounts of concessional financing for development. At present, the Bill and Melinda Gates Foundation is the only private entity reporting to the OECD.

b. Donor performance

Part of the total aid from DAC countries is channeled trough development banks and other multilateral organizations.

In 2010, the total use of multilateral organizations represented 40% of ODA.

a. Net ODA Disbursement

In 2011, the largest donors were the USA, Germany, the UK, France and Japan.

Country Programmable Aid (CPA) is the subset of total ODA that is generally included in multi-year forward expenditure plans.

DAC members' total CPA, including the EU institutions, was $66 billion in 2010, representing 57%of DAC members' gross bilateral ODA.

The OECD currently has 34 members countries, 23 of which are members of the DAC.

The ODA flows from the 11 OECD countries that are not DAC members.

Those countries are :

• Chile
• Czech Rep.
• Estonia
• Hungary
• Iceland
• Israel
• Mexico
• Poland
• Slovakia
• Slovenia
• Turkey

ODA flows from DAC countries, analysis of 4 periods :

• 1960-1970 : ODA/GNI (red) fell and Total ODA (blue) oscillated.
• 1960-1990 : ODA flows rose steadily
• 1990-1998 : ODA flows fell by 16% at the end of Cold War due to fiscal consolidation in donor countries
• 1998-2011 : Aid start to rise in real terms.

f. Environment

e. Gender equality

• Developed countries need to deliver fully on longstanding commitments to achieve the official development assistance (ODA) target of 0.7 per cent of gross.
• the Group of 8 industrialized nations are expected to double aid to Africa by 2010 and European Union Member States to allocate 0.7 per cent of GNI to ODA by 2015.

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d. Untied aid

The developed countries that signed the 3 Rio conventions in 1992 (Climate change, Biological diversity and Combat Desertification), committed themselves to assist developing countries in implementing them.

In 2010, the total DAC ODA commitments

targeted at all the objectives of the Rio

convention were higher than the

previous year.

Conclusions

All DAC members, except the USA, screen their activities against the DAC gender marker. This marker is used to classify donor-supported activities in terms of their gender equality focus.

As shown in the figure, total DAC aid commitments for gender equality and women empowerment increased significantly in 2008 and 2009, but decreased slightly in 2010.

Untied aid is defined by the DAC as loans and grants whose proceeds are fully and freely available to finance procurement from all OECD countries and substantially all developing countries.

This figure shows how much of members'

aid is open for procurement through

international competition.

2. Distribution among Regions

1. Distribution by income group

This table shows that there is no big difference of distribution of ODA to recipients countries in ten years.

ODA

Allocations

In recent years, ODA goes first to Sub-Saharan Africa, then to South and Central Asia.

Although this is positive, it nevertheless highlights the need for donors to accelerate their plans to scale up aid to Africa.

3. Distribution by Sector

6. Responding to Humanitarian need

4. Foreign Aid's Significance for Partner Countries

5. Development & Humanitarian Aid

(EU Study case)

The EU assists on humanitarian crisis, providing emergency assistance trough NGOs, the UN system and other organizations on the ground, to deal with the effects of natural disasters ans conflicts around the world. EU has delivered needed goods and services including food, water, clothing, shelter, medical provisions, sanitation, emergency repairs, and mine cleaning in more than 100 countries and regions.

EU has a longstanding preferential trade and aid relationship with the "ACP-countries", 79 nations in sub-Saharan Africa, the Caribbean, and a number of Pacific island states representing more than 650 million people.

The European Union (EU) is the world's biggest largest aid donor, providing 54% of official development assistance (ODA), more than $71 billion in 2009.

The EU vision is to eradicate poverty by empowering developing countries to better their economic and social situation, addressing the myriad problems suffered by the poor.

The EU works with national governments to attack problems such as limited access to food and clean water, education and proper health care, and employment and social services, as well as environmental and infrastructure issues.

Calculations of the distribution of foreign aid by sector are difficult to interpret precisely, because reports from various donors vary.

Criteria are different from country to country within the DAC.

Nevertheless, it is clear that DAC countries give the priority to social and administrative infrastructure.

This figure shows that Oceania countries depends on ODA heavily (11.42%) and Africa second (3.49%) in 2009. Other regions are all below 1%.

Definition

of ODA

ODA eligibility of contributions to

multilateral and NGOs

• UN agency
• National NGOs
• Main International NGOs

Official agencies

• Include federal, state and local departments and agencies
• But not the market-based transactions of central monetary authorities
• Official subsides to private firms may be recorded as Other Official Flows (OOF) [Not ODA]
• Official subsidies to private NGOs that are active in development

Financial Resources

for International

Development

Cooperation  

Flows

DEF : Flows are transfer of resources, either in cash or in the form of commodities or services.

Repayments of the principle of ODA loans count as negative flows, and are deducted to arrive at net ODA, so that by the time a loan is repaid, the net flow over the period of the loan is zero.

Interest is recorded, but is not counted in the net flow statistics.

Where official equity investments in a developing country are reported as ODA because of their development intention, proceeds from their later sale are recorded as negative flows, regardless of whether the purchaser is in a developed or a developing country.

Exclusion if military aid

(not reportable as ODA)

Limits on ODA Reporting

(ODA-eligible)

• Supply of military equipment & services
• Forgiveness of debts incurred for military purposes

• Additional costs for donors’ military forces to deliver humanitarian or perform development services

Disbursements are measured on a cash basis, not an accruals basis, except that:

• wherever contributions to multilateral development banks and funds are made in the form of promissory notes, the full amount of the note is recorded at the time of deposit; and
• the net present value of debt relief provided by implementing a Paris Club debt reorganization through debt service reduction is reportable as an ODA grant in the year of the reorganization.

Social & culture prog.

One-off interventions,

ex. Sponsoring concert tours.

In order to reduce the scope for subjective interpretations and promote comparable reporting, Development Assistance Committee (DAC) Members have agreed to limits on ODA reporting :

Build developing countries’ capacity, ex. promotion of museum, libraries etc.

Civil police work

Some transactions not recorded as transfers in balance of payments statistics are nevertheless eligible to be recorded as ODA, since they represent an effort by the official sector in favour of development.

Supply of donors’ police services to civil disobedience

Research

Expenditure on police training (excluding paramilitary functions)

Peacekeeping

Only directly & primarily relevant to the developing countries’ problems, ex. Research into tropical diseases, developing crops designed for developing country condition.

Enforcement of peacekeeping

Nuclear energy

Military applications

Net bilateral cost of carrying out UN-administrated or approved peace operation : human rights, election monitoring, etc.

These include the costs of education and training (including stipends and travel) provided to developing country nationals in the donor country, the administrative costs of ODA programmes, subsidies to non-government organizations, and programs to raise development awareness in donor countries.

Peaceful use of nuclear energy, including plants construction and medical use of radioisotopes

Assistance to refugees

Temporary assistance to refugees:

• During the first 12 months of refugees’ stay in donor countries.
• Costs associated with repatriation to a developing county

Capital investments in the donor country is not regarded as a flow and is therefore not eligible to be reported as ODA. This applies even to the constructions and equipment of training and research facilities related to development issues. The running costs of such facilities may, however, be counted as ODA.

Concessional in Character

Where concessional and non-concessional financing are combined in so-called “associated financing packages”, the official and concessional elements may be reported as ODA, provided they have a grant element of at least 25 per cent.

Such contributions must also meet the special concessionality tests for associated financing, which are based on market interest rate and set out in the Arrangement on Guidelines for Officially Supported Export Credits (OECD, 1998).

When in the early 1970s interest rates began rising sharply, it was further specific that loans could only be reported as ODA if they had a grant element of at least 25 per cent, calculated against a national reference rate of 10 per cent per annum.

But qualify as ODA, loans must still be concessional in character, i.e. below market interests rates.

1. Domestic resource mobilization

The domestic economy is virtually always the dominant source of savings for investment.

The domestic policy environment is a decisive determinant of the desire to invest. The actions of domestic policymakers largely determine the state of governance, macroeconomic, and microeconomic policies, public finances, the condition of the financial system, and other basic elements of a country’s economic environment.

2. Trade

Since the 1960s, every country that has pulled its people out of poverty has made a significant opening to trade a central feature of its economic strategy.

In the huge gains that would accrue from removing remaining barriers to trade, poor households would gain the most, in terms of the proportionate boost to their living standards, in both the rich and poor countries.

3. Private capital flows

Official Development Assistance (ODA)

The bulk of savings available for a country’s investment will always come from domestic resources, whether that country is small or large, rich or poor.

Foreign capital can provide a valuable supplement to finance investment and growth.

The majority of African countries attract relatively little foreign direct investment (FDI), and much of what does come is to the mineral sector.

is defined as those flows to countries on the DAC list (p. 88) and to multilateral institutions for flows to aid recipients which are :

4. International public finance

International development cooperation retain four vital roles in which it has essentially no substitute:

1. helping to initiate development;

2. coping with humanitarian crises

3. providing or preserving the supply of global public goods;

4. confronting and accelerating recovery from financial crises.

2.

...each transaction of which:

a)

Is administered with the promotion of the economic development and welfare of developing countries;

b)

Is concessional in character and conveys a grant element of at least 25% (under a rate of discount of 10%)

5. Workers' remittances

Provided by official agencies, including state and local governments, or by their executive agencies, and...

1.

So far, this sector is still a major missing list.

Whatever the difficulties in precisely estimating the total amounts involved, and attempting to asses their developmental impacts, it remains true that the steadily growing importance of workers' remittances is an under-recognized trend in the external finances of developing countries, especially some of the smallest and the poorest.