The OECD DAC’s proposed aid rules: a worse crunch still to come?

Added 17 Jul 2017
Three months ago, we blogged that it could be crunch time for the Organisation for Economic Cooperation and Development Development Assistance Committee (OECD DAC)’s rules on aid. These are the rules that decide how much ‘aid credit’ donors have earned, and hence how they measure up against the UN target that aid should account for at least 0.7% of national income. 

When we posted that blog, DAC members had been given a deadline of 26 April to decide on the new rules, which would allow them to report more support for private sector actors in Southern countries as Official Development Assistance (ODA). We were concerned that the DAC was rushing into far-reaching changes, without having built in basic safeguards to protect the core purpose of ODA – poverty reduction.

So where do we stand, three months on?

At one level, we needn’t have worried. DAC members didn’t rush into a decision on 26 April, nor at any of the unrelenting sequence of meetings, statistical working groups, and informal get togethers that followed in the subsequent months. This week saw the last regular DAC meeting before the autumn – and it too closed without agreement.

Yet at a deeper level, the situation is more worrying than ever. All available information suggests that those three months of negotiations have done little to address our core concerns, including on:

  • The way that ODA credit will be calculated. Under the current proposals, donors may be given generous ODA credit, even if support to the private sector is offered on close-to-commercial terms. This undermines the fundamental principle that ODA should be concessional. It also risks creating a perverse incentive: if the rules give generous ODA credit for transactions that involve little tangible cost, donors may divert scarce ODA resources to the private sector. That could mean taking them away from other essential uses such as public healthcare and education that people in the South – particularly the most marginalised – value more. 

  • The risk that donor support to the private sector will have unintended consequences – such as increasing the level of aid that is ‘tied’ to firms in donor countries (either in principle or in practice), and crowding out the local private sector; supporting firms with poor environmental, human rights, or tax practices; or contributing to unsustainable levels of debt. The new rules could have been an opportunity to put in place new safeguards against these risks – for example, by making more data available for public scrutiny – but this opportunity has largely been missed.

  • The exclusion of Southern voices from the process – contrary to the agreed development effectiveness principle that development should be Southern-owned. Southern citizens and Southern governments will have no meaningful say in the decision on the new rules. Nor, based on past experience, are they likely to have much input when the rules are put into practice – unless strong commitments are made to ensure that programmes governed by the new rules align with democratically owned national development priorities.
Far from responding to these development effectiveness concerns, we understand the recent negotiations put development impact under even greater threat. Some donors are pressing for the rules to allow for even more generous ODA credit, irrespective of the risks that we have been highlighting. As patience with the negotiations wears thinner, there is a danger that other donors will bow to this pressure in the interests of a faster resolution.

So with the summer upon us, we urge donors not to lose sight of the big picture. If a quick resolution comes at the cost of development impact – and maybe even the credibility of the whole ODA measure – then that’s too high a price to pay. When it comes to the crunch, the only thing driving these decisions should be the priorities of people living in poverty – not a short-sighted drive to maximise ODA credit.