Covid-19 and Official Development Assistance: current issues and challenges

The Covid-19 pandemic is in danger of seriously undermining the capability of developing countries to achieve the Sustainable Development Goals (SDGs). Helping these countries to respond adequately to the health emergency and economic fall-out requires a broad range of systemic measures and close international cooperation.

Official Development Assistance (ODA) could play a crucial role in tackling the immediate impacts of the coronavirus crisis and supporting a recovery centred on human rights, gender equality and a just transition.

After a brief overview of the state of play of ODA, drawing on the most recent data available, this briefing paper looks at the initial responses to Covid-19 of the main bilateral providers of ODA. It finds these responses are significant, representing roughly 20 percent of total bilateral ODA. However, it remains unclear to what extent these resources can be considered as ODA and whether they are in fact additional to the resources that had been committed before the start of the pandemic.

Given the lack of ambition voiced by members of the Organisation for Economic Co-operation and Development’s Development Assistance Committee (DAC) in their joint statement to ‘strive to protect aid budgets’, it is all but certain that aid spending will remain at current levels in the near future. However, in the context of expansionary fiscal and monetary policies in donor countries and the moral imperative to address the global consequences of the coronavirus outbreak, this paper makes the case for an urgent upscaling of ODA as part of a more comprehensive, systemic multilateral response.

A second part of this briefing paper looks at a number of key trends that undermine the quality of ODA and risk being exacerbated by donor responses to Covid-19.

  1. Donor providers have been preferring loans over grants in recent years, while the level of concessionality (the degree of ‘softness’ of a credit reflecting the benefit to the borrower compared to a loan at the market rate) has decreased. As many developing countries are facing unsustainable debt levels and all other sources of development finance are simultaneously drying up, donors need to consider grant-based finance as the default option.
  2. Policy makers and experts are calling for a strengthened role of development finance institutions (DFIs) and blended finance. Since evidence of the impact and scalability of such financing options is hardly robust, this debate should focus on a development effectiveness framework to ensure scarce ODA is used where it is needed most and can achieve most impact.
  3. Debt relief is expected to return as an aid modality as calls to go beyond the limited debt standstill agreed by the G20. These efforts should result in additional fiscal space to finance policies that are centred on human rights and gender equality, and should kick-start a transition to climate resilient and sustainable economies.

ODA budgets are used to finance solutions that equally benefit donor and developed countries, such as vaccines and treatments for Covid-19. This risks undermining the credibility of ODA as a measure of donor effort to support developing countries and as a key tool for international accountability of providers.

In the final part of this briefing paper, we present a number of key recommendations for ODA providers to help maximise its potential as a key resource in tackling the current crisis. These policy actions centre around scaling up the resources available to developing countries to match the challenges, improving the quality of ODA to align with developing countries’ needs in the face of the pandemic and rethinking ‘aid architecture’ to bounce-back better.

Read the full briefing