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TOSSD overboard? Will this new acronym spell the end of development aid targets?

The rich country think tank – the Organisation for Economic Co-operation and Development (OECD) – is embarking on a major change to the way that financial flows between rich and poor countries are assessed, which could have major implications for aid, global public goods and private investment.

A new way of measuring development finance
At the moment, the OECD’s Development Assistance Committee (DAC) measures Official Development Assistance (ODA – or ‘aid’) pretty well. Their statistics are the basis for assessing how many developed countries have met the long-standing target of giving 0.7% of gross national income as aid. 

Now, the DAC has set its ambitions much higher. The acronym they’ve chosen is not very sexy – they want to measure ‘total official support for development’ – catchily abbreviated as ‘TOSSD’. The aim is to “valorise” and “incentivise” development finance “from a wide variety of sources and actors”. This would mean that, among other things, the OECD would begin tracking public finance that ‘leverages’ private finance. This includes subsidies known as ‘blending’, official guarantees insuring companies against losses, and even direct ownership through equity purchases. 

In practice this means combining parts of expenditures of export credit agencies, development finance institutions (DFIs), private financiers (including venture capital/hedge funds), multilaterals and others.

Eurodad has been researching many of these issues for a number of years and a recent summary of our concerns about this kind of development finance can be found here

However, the TOSSD measure could go well beyond this as the limits to what could be included are currently very broad – defined as “
flows that support one or more of the three dimensions [environmental, social, economic] of sustainable development”. This includes capturing public expenditure for sustainable development or global public goods.

This is a work in progress, scheduled for completion by 2019. In the meantime, consultations are promised – more details on the ‘roadmap’ for the process can be found here.

Why we should worry?
There are a number of very serious risks attached to this proposal, some of which cast doubt on whether it’s a good idea at all. We have three major concerns.

First, despite current commitments indicating otherwise, some donors are very likely to use this as a way to downgrade ODA commitments in the future. Certainly some will seek to replace ODA commitments with TOSSD commitments. This could have the effect of reducing ODA, or of diverting more and more ODA to subsidising private finance schemes (as $1 ODA spent in this way may result in several dollars of TOSSD in addition) – hence reducing the amount available for traditional public expenditure.

Second, valorising and incentivising rich country governments to subsidise or back-stop private investment is not necessarily a good thing – it depends on the specific country circumstances. As Eurodad has noted, historically there have been huge risks associated with international private finance flows. If done badly, it can end up valorising and incentivising more private finance flows that may be: short term and liable to leave rapidly, causing destabilisation; debt creating, including through contingent liabilities (hidden debt); or denominated in foreign currency, increasing exchange rate risks.

Finally, the implications for global public goods (GPGs) are far from clear. There is a risk that attention will be focused on in-donor expenditures that contribute to GPGs and thus reduce resource transfer to the developing countries that need these funds the most.

If TOSSD could incentivise long-term ‘patient’ investment finance, with strong transparency, and environmental and social safeguards, then it could prove to be a useful measure. However, the very broad nature of the current definition, and the fact that it intends to valorise and incentivise flows that may not support development, does not inspire confidence. At this stage it’s impossible to tell where TOSSD will end up, but it’s certainly time for all those concerned with development finance to take note, and possibly to start worrying.