Next week the OECD DAC will release preliminary figures for the amount of Official Development Assistance (ODA), or development “aid”, raised by its member states. Recent years have seen a significant increase in spending within donor countries and a steady decline of resources flowing to the world’s poorest countries: will the new figures demonstrate that the international community has begun to tackle these trends which diminish the credibility and effectiveness of ODA?
Over the past two years the OECD DAC has celebrated a rise in overall ODA levels but, counterintuitively, the amount of aid going to the world’s poorest countries has declined. In a recent report the IMF notes:
“Aid flows to [Low-Income Developing Countries] … have slipped significantly since 2013—declining from 2.2 per cent of LIDC GDP in 2013 to 1.8 per cent in 2016, a relative decline likely to have continued since then.”
This being the case the question arises: if not to the poorest countries then where does the extra money go?
First, much of the recent rise in ODA is due to reporting of spending in the donor countries themselves. A recent assessment reveals a decrease in flows to partner countries such as budget support (from USD 3.5 billion in 2013 to just USD 488 million in 2016) and a drastic increase of spending within donor countries (from USD 5.1 billion in 2013 to USD 16.3 billion in 2016). Much of this is caused by increases in in-donor spending on the costs of new refugees, which rose from around $2 billion in 2013 to almost $12 billion in 2016 (or 11% of total ODA, see below).
Stripping these figures out of ODA would be sensible – this is important spending, but does not represent aid to developing countries – and would reveal that ODA increases have been much more modest. If you add to this the fact that in 2016 USD 16.8 billion of ODA was tied to firms based in donor countries, the picture being painted is that while donors as a whole are increasingly generous, the largest single recipient of that generosity is themselves.
Second, there has been a shift in allocation of aid between different categories of countries. A geographic assessment of ODA flows shows that, while aid to LDCs has been declining, aid to Lower Middle Income Countries (LMICs) has been stable and Aid to Upper Middle Income Countries (UMICs) has increased.
In an ideal world, when the OECD DAC releases its figures next week, we would find that all of these worrying trends have been dealt with. The press release would indicate that ODA levels have increased drastically as donors finally decided to take their 0.7% commitment seriously. The decline in ODA to the world’s poorest countries has been reversed and resources transferred to partner countries are done on basis of promoting democratic ownership, transparency, accountability and development results.
However this is far from likely. Given the emphasis among the donor community to promote blended finance and private sector instruments, it will become increasingly difficult to combat these trends as these instruments prioritise commercial objectives in middle income countries and potentially lead to an increase in tied aid (aid that can only be used to buy goods and services from the country providing the aid). The OECD DAC and its membership are highly aware of these issues and have made commitments promising to counteract them, but as OECD secretary general Angel Gurria said in the release of last years figures “It is now time to turn these commitments into action. Together, we must pay close attention to where the money is going and what is being included in foreign aid.” ODA is in the middle of a credibility crises and it is up to the donor community to determine whether it can become a positive indicator of the world’s commitment to development and the eradication of poverty. Next week’s figures will give a good sense of which direction we are heading in.