Time for action: How private sector instruments are undermining aid budgets

Official development assistance (ODA) plays a fundamental role in an increasingly complex development finance landscape. However, ODA levels have been stagnating in recent years and a new narrative placing ‘the private sector’ at the heart of resource mobilisation efforts has emerged. This report brings together and analyses all agreements and commitments made to date by DAC members on the topic of ODA and private sector instruments, their implications and the main issues at stake.

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The analysis of this report finds that:

  • The amount of ODA reported as PSIs is increasing (from 1.7% to 2.2%) and is mainly reported through the institutional method (52% in 2018, and 69% in 2019).
  • Aggregate PSI levels may seem small but their scale is significant compared to allocations to specific purposes or sectors. Gross PSI ODA in 2018 and 2019 (US$ 4.6 billion) was above the amount of gross bilateral ODA that DAC members spent on basic health (US$ 4.3 billion) in 2018 and just equal in 2019; it equalled almost twice the amount spent on primary education in 2018 and 2019 (US$ 2.5 billion and US$ 2.3 billion respectively); it represented almost three times the amount spent on general budget support in 2018 and 2019 (US$ 1.8 billion and US$ 1.9 billion respectively); and approximately five times the DAC bilateral ODA spent in 2018 and 2019 on social protection (US$ 934 million and US$ 891 million respectively).
  • The vast majority of PSI ODA goes to middle-income countries, with 59% (2018) and 51% (2019) of country allocable PSI ODA going to upper middle-income countries, compared to 7% (2018) and 2%  2019) going to Least Developed Countries (LDCs).
  • The UK and France reported substantially higher amounts of PSIs compared to other DAC members for both years: US$ 1.4 billion and US$ 680 million respectively in 2019, up from US$ 1 billion and US$ 543 million in 2018 respectively.
  • Additionality – both in financial terms and in terms of value – is a key rationale for channelling aid through PSIs. Although between 2018 and 2019 the number of DAC members reporting the type of additionality increased from six (2018) to ten (2019), still a third of PSI ODA (US$ 1.5 billion) in 2019 was left unreported in terms of which type of additionality the PSI initiative was bringing. Even
    in cases where donors reported additional information describing their PSIs initiatives, this information was limited and nonspecific.

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