Is ODA up to the challenges posed by the coronavirus pandemic?
The figures were published amidst an unprecedented crisis that risks erasing any progress made in achieving the Sustainable Development Goals by 2030. While it is clear that ODA will be an important part of the international community’s response to the coronavirus crisis, this blog assesses whether ODA is up to the job and identifies three key challenges that the international community needs to address as a matter of urgency.
A quest for more ODA
A first challenge is to scale up the available support for developing countries to help them respond to the coronavirus crisis, as Eurodad has argued in a previous blog, at least to the level that donors have already promised.
In 2019, ODA increased slightly compared to 2018, but this is in real terms and in absolute figures only. In a press release, the OECD’s Secretary-General Ángel Gurría welcomed this ‘good news’ as an ‘important first step’, recognising the need for development providers to step up support in the weeks and months ahead.
However, a closer look at the data calls for more realism about donors’ performance. In 2019, the ODA to Gross National Income (GNI) ratio dropped from 0.31 to 0.3 per cent. Only a handful of Development Assistance Committee (DAC) members are actually meeting the 0.7 per cent spending target for development assistance. Donors are still falling short by more than US$ 200 billion when it comes to closing the funding gap to fulfil this promise made over half a century ago.
Moreover, the reported increase is at least partly a consequence of the recent changes in the rules of what counts as ODA, particularly for reporting of ODA given as loans. Using the previous reporting method, based on actual financial flows instead of ‘grant equivalents’, ODA increased by only 0.1 per cent in real terms between 2018 and 2019. Ambition in terms of targeting the poorest countries is also still lagging behind, yet these are the countries that will be the most affected by the current pandemic and its consequences in the long term.
Although 2019 ODA shows a 2.6 per cent increase in real terms compared to 2018 and US$ 33 billion of net bilateral ODA flow to least developed countries (LDCs), this represents a mere 0.06 per cent of the DAC countries’ GNI – far from the specific 0.15-0.20 spending target for LDCs donors committed to in the early eighties.
In a joint reaction, DAC members acknowledged the magnitude of the impacts of the Covid-19 crisis and committed to ‘strive to protect aid budgets’. This is certainly insufficient – merely ‘protecting’ ODA budgets may actually result in less support being available to support developing countries’ crisis responses.
Development Initiatives projected that, if ODA providers maintained ODA spending at the current level of 0.3 per cent of GNI, ODA in 2020 could fall as much as US$ 14 billion below 2019 levels following an economic downturn as a consequence of lockdown measures in donor countries. As many developing countries lack the resources and capacities to adopt the kind of economic recovery packages seen in developed countries, donors need to be ambitious with their ODA budgets in 2020. This means not only protecting but going beyond the 2019 figures to finally meet the long-standing 0.7 per cent target and responding to the UN’s call for a bold and ambitious Marshall Plan.
As donors are putting together multi-billion dollar recovery packages for their own countries, this is an opportunity to include an external dimension to those plans to support poorer countries as a first step. Expanding support to poor countries with 0.7 per cent of donors’ economic response packages would add nearly US$ 30 billion to existing resources.
A quest for better ODA
A second challenge is for donors to reassess their priorities in terms of where and how their support to developing countries is delivered. A key lesson learned from the current crisis is the crucial importance of robust public services, particularly health and social protection systems. Decades of austerity policies, however, have left these systems largely unprepared in many countries, calling into question donors’ current focus on using ODA to mobilise private finance for development.
In their joint response to the pandemic, DAC members stressed the role of domestic and international private sector actors in supporting governments to deliver effective responses and economic recovery. While private actors have a key role to play in economic recovery, the question is whether using scarce ODA to subsidise private sector actions is the right approach to face this crisis.
The OECD’s recent data show an increase in reported use of Private Sector Instruments (PSI) between 2018 and 2019 of 22 per cent. Previous analysis by Eurodad and Development Initiatives revealed PSI are heavily concentrated in a limited number of middle-income countries and in sectors such as infrastructure – with little information available on their impact on the poorest countries. The current crisis challenges the donor community to shift their priorities and focus on how best to shore up public services and health systems through budget support and other direct transfers.
Better ODA also means reversing the current trend of favouring giving loans over grants. Loans as a component of ODA are peaking and grew by almost 50 per cent between 2010 and 2018 as a share of bilateral ODA, while grants increased by only 13 per cent. This shift is most prominent in the poorest countries. Recent policy responses from the World Bank and International Monetary Fund (IMF) also have a very strong focus on additional lending to countries impacted by the coronavirus crisis. This is particularly troubling in a context of mounting pressure on government budgets in developing countries and looming debt crises.
Civil society organisation analysis found that 64 developing countries already spent more money on debt service payments than on health in 2019. If donors want to avoid undermining the efforts supporting developing countries to strengthen their health systems by the shifting of resources to service debts, grant-financing should be the default option.
A quest for fair reporting on ODA
Over the past few years, aid experts have been tied up in discussions about what can and cannot be counted as ODA. Eurodad has been engaging in these discussions too, not only because we believe ODA, as a measure of donor effort, is a key prerequisite for international accountability, but also because the rules on what can be counted as ODA conditions donors’ behaviour in terms of their reporting criteria. While our energies should be focusing on making sure enough resources are deployed to benefit the poorest and most vulnerable, it is also important to fix a number of long-standing issues with ODA reporting.
First, we need to revisit the rules on how debt relief can be counted as ODA. In the past, significant peaks in aid spending have been explained by large-scale debt forgiveness. Today debt relief only amounts to 0.1 per cent of ODA but this is likely to increase as calls for much-needed debt forgiveness are gaining traction. This is why we are urging donors to exclude all debt relief on ODA loans from future reporting, while ensuring that efforts to support debt relief initiatives do not absorb existing aid budgets.
Another unresolved issue is aid spending that never leaves the donor country and does not contribute to sustainable development. The most notable example includes costs associated with the support of refugees in the first 12 months after their arrival in a country. These costs have been an important variable in explaining differences in development spending over the past few years and still account for 6.7 per cent of ODA in 2019.
As donors are thinking how they should contribute to the global Covid-19 response, we could expect to see the emergence of other forms of in-donor expenses. One example includes contributions to the development of a vaccine for Covid-19. While these are very welcome and much-needed investments, there is a strong case not to include them as ODA.
ODA will and can be a crucial part of the global response to the coronavirus pandemic, but to realise the true potential of ODA, providers of aid need to step up to the threefold challenges presented above. This may seem difficult when donor countries are focusing on dealing with the disease and its economic fall-out at home, but stopping there may be short sighted as – paraphrasing Ethiopian Prime Minister Abiy Ahmed – beating Covid-19 means beating it everywhere.