Last year’s Official Development Assistance (ODA) for all OECD’s Development Assistance Committee (OECD DAC) members equaled 0,31 per cent of gross national income, less than half of the 0.7 per cent longstanding spending target – a commitment made almost half a century ago.

"Since donor commitments are vital to eradicate poverty and aid rules have a profound effect on the lives of people in poverty, the figures are a strong indicator that progress toward the sustainable development goals is off track. What is worrying about the figures is that they provide a brighter picture than what the reality in developing countries looks like," Jan Van de Poel, Policy and Advocacy Manager on Aid Effectiveness at the European Network on Debt and Development (Eurodad), commented.

Current aid reporting rules used by the DAC allow for a large portion of ODA to be spent in donor countries themselves, instead of reaching the poorest countries. Preliminary 2018 figures show over 7 per cent of ODA is spent on the cost of hosting refugees, down 2.5 percentage points from last year. This drop only partly explains the current decline in total aid spending. Against this backdrop it is particularly alarming that donors are backstepping on their aid commitments, especially to countries that are most in need.

This year’s figures present an important novelty on how loans are reported. Until now loans had been reported on a ‘cash-flow basis’ which allowed donors to report loans for their full amount. The new rules however require donors to report only the ‘grant equivalent’ of the loans – the donors’ actual financial effort. In theory, this system would allow for a more realistic image of development resources and real donor contributions, but in practice it may provide perverse incentives to donors. A country like Japan spending most of its aid in the form of loans sees its ODA figures rise over 40 per cent as a consequence of the new reporting method, whereas a focus on grants can produce stronger results for sustainable development.

Currently, the new reporting method does not apply to Private Sector Instruments (PSI), a mechanism donors are increasingly adopting. PSI are subsidies from donor countries to private sector actors through loans, equity investments or guarantees. In the current system donors have too much room for bargaining to report on these private investments.

"Rich countries increasingly use development aid to support the private sector through contentious private sector instruments. Investments through these instruments often prioritise commercial objectives in middle-income countries, leaving behind low-income countries and public service sectors which are not easily turned into profit making business, like education or health care in remote rural areas,” Van de Poel continued. “To avoid diluting of the boundary between aid and commercial transactions, DAC members must urgently agree on robust rules on reporting private sector instruments that do not risk to incentivise such instruments above other types of development aid, such as grants, which often reap greater results for the poorest and most vulnerable. This is especially urgent as today’s figures show a significant drop in aid spend in least developed countries and sub-Saharan Africa in particular.

"As the guardian of the aid rules, the DAC has a unique responsibility to urgently tackle the risks in the standards that it sets. It is essential for them to be transparent in order to safeguard the unique characteristics of official development aid, to fund public services for the people who need it most," he concluded.