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Arguing the TOSSD: is the OECD’s new measure for Total Official Support for Sustainable Development a good idea?

Added 24/Nov/15

Last week, I went to an expert group meeting to discuss a new framework being prepared by the Organisation for Economic Co-operation and Development (OECD)’s Development Assistance Committee (DAC) for monitoring and measuring flows that could be considered developmental but are not currently captured in Official Development Assistance (ODA, or ‘aid’). This new framework is provisionally called Total Official Support for Sustainable Development (TOSSD). The stated purpose of this framework is not to supplant ODA but to provide transparency on other financial flows that support the new Sustainable Development Goals (SDGs) adopted by the UN.

Now, I think this agenda has serious risks attached – it could undermine aid targets, incentivise the wrong kind of private investments, and give donors false credit for supporting global public goods. But last week I was challenged to think about what the positive side might be. I have two initial thoughts.

1. For recipients: transparent accounting of costs and benefits? 

First, from a recipient’s perspective, the main use could be a transparent accounting for the balance sheets of donor finance: clearly exposing both positive and negative aspects. This would provide a welcome focus on providing recipients with better information about finance that flows to their countries. This could help them answer key questions when presented with a donor-supported financing package:

  • What are the total financial costs and benefits?
    • What is the cost to the recipient of the total financing package? How does this compare to other alternatives? As Eurodad has noted, Public Private Partnerships (PPPs), which are becoming a preferred donor-backed financing method, are often designed to hide this information.
    • What are the liabilities – both explicit and contingent? The nature of private investment is that projects will sometimes fail. When that investment is in a public service with human rights implications (such as water supply) or with major economic consequences (such as electricity or telecoms) then the government is unlikely to be able to let this happen. Governments will inevitably step in – meaning that contingent liabilities are very real, and may be very large. 
    • What are the overall risks and rewards? This involves getting information on many other questions:
      •  How short term is the finance? Is it ‘hot money’ and likely to leave rapidly if there’s a perceived problem in the country?
      • What are the debt risks, including those caused by the contingent liabilities?
      • What foreign currency risks are there? Do these risks matter in the context of the overall economic situation of the country (countries that are already highly exposed to foreign currency risks are likely to want to control or limit further risks).
      • Are there tax implications? What can be done to ensure that tax is not avoided or that unnecessary tax breaks are not being offered?
  • What are the overall development impacts (both positive and negative)?
    • Before (ex ante) it will be important to try to make sure that all finance follows responsible finance standards – such as those in Eurodad’s responsible finance charter – to prevent harm and to maximise positive likely impacts.
    • During and after (ex post) – it’s not acceptable to just count an investment at the starting point. It needs to be tracked over the course of the investment (for example, if the investment collapses and ends up racking up costs to the government, the overall balance sheet needs to show this negative impact).
    • These thoughts side-step the elephant in the room, which is why recipients should expect a donor-controlled body such as the DAC to be the arbiter of questions like this, especially when they have had very little input into the TOSSD discussions so far.

2. For donors: preventing bad incentives?

Second, from a donor’s perspective, TOSSD presents a huge risk of bad incentives, but these could be mitigated if the accounting is complete (covers all financing), separate (does not try to add everything together to create a false target), and balanced (recognises negative as well as positive flows).  

  • A complete picture would mean cleaning up ODA – recognising that there are several elements in ODA that do not fit there – such as in-donor refugee costs, in-donor education costs, and the additional costs of tying aid in order to support donor firms. These costs should obviously not be included in ODA – as they involve no transfers to developing countries, and are the consequences of domestic policy decisions. If they are to be in TOSSD, then they need to pass the development impact test – which the additional cost of tied aid obviously doesn’t. It would also mean cleaning up Other Official Flows (OOFs), which is currently a kind of rubbish tip for elements of donor reporting that don’t fit into ODA. (It would be very useful to have a proper accounting for official flows that don’t have a development purpose, such as military aid, but OOF doesn’t provide this.)
  • Separate accounting would mean making estimates for each item separately, but avoiding the temptation to add them all together into a single TOSSD figure. This would prevent the danger that TOSSD will be seen as a target that donors aim to increase. Given that many elements have both positive and negative elements in their balance sheets, as noted above, then pushing for more TOSSD does not make sense. It also risks a massive alteration to ODA incentives. If donors that use ODA to leverage private finance get credit for $1 of ODA plus $20 of TOSSD additional ‘leveraged’ finance, then there is a clear incentive to spend ODA in this way. This is despite the problems highlighted above, and also the fact that $1 of ODA spent on traditional public expenditure – such as education, health and infrastructure – is, I would argue, more likely to leverage private investment.
  • Balanced accounting would recognise that, for example, private investments may result in additional finance initially, but may also lead to outflows over time. Failed projects result in costs. Both sides of the financial balance sheet need to be accounted for.

Finally, there should be an absolute bar on attempting to use this process to account for contributions to global public goods, as this makes no sense unless negative contributions are also included. Why valorise, for example, the Netherlands’ transfers to support mitigation efforts to reduce CO2 emissions from Chinese power plants, without comparing that with the Netherlands’ own emissions from its power plants? This is an important task, but one, I would humbly suggest, that is well beyond the remit and capabilities of the DAC.

The problem with my suggestions above is that they are a long way away from where some donors – for short-sighted motives – want to push the agenda, which is to earn credit for leveraging private finance, without considering the risks or potential negative outcomes. The question is whether the DAC is willing to insist that TOSSD is only a good idea if it both provides useful information for recipients, and cleans up donor accounting. The jury is still out on that question.