Hot Topic: Is it time to redefine ODA?

Molly Anders at DEVEX has published poignant and insightful piece on whether or not it is time to redefine ODA? This will certainly be an evolving discussion over the next few weeks:

Next week the Development Assistance Committee within the Organization for Economic Cooperation and Development — the body responsible for defining and tracking official development assistance — will hold a high-level meeting in Paris to discuss, among other things, how the Syrian refugee crisis is changing ODA flows and what can be done about it.

“Let’s set the most important issue straight,” Erik Solheim, chair of the OECD-DAC and a former minister of environment and international development in his native Norway, told Devex during a recent interview in Washington, D.C. “We need a lot more development assistance as well as a lot more investment for the poorer parts of the world to avoid the pressure on Europe.”

2014’s aid data — released in early January by the OECD — will guide the talks, and have revealed a few key trends: While aid has increased overall across member countries, it hasn’t kept pace with economic growth. So while national budgets are increasing, aid budgets as a percentage of gross national income are on a downturn.

And in spite of Solheim’s call for more aid to the poorest nations, figures show that aid to least developed countries saw a particular drop, down by almost 5 percent from 2013.

Among the reasons for the decrease in aid to LDCs is the migration crisis and the protracted conflict in Syria, which has displaced an estimated 6 million people and has seen more than 1 million refugees arrive in Europe, according to the International Organization for Migration.

In response, a handful of top European donors have redirected aid funds to their domestic budgets to cope with increased migrant flows. The practice is allowed under OECD rules, which permit the use of ODA to support refugees for their first year of residence. As donors divert these funds, the data show the hardest-hit recipient countries have also been the most in-need.

“Italy, the Netherlands, Sweden these are a few countries that generally have been very generous with aid, but then when you look below and see what they’re spending it on, a huge proportion never leaves the country,” Sara Harcourt, policy director for development finance at the ONE Campaign U.K., told Devex.

Sweden, Italy and the Netherlands now invest more foreign aid within their own borders than in any single developing nation, OECD data shows.

And other countries, like the U.K., are spending more ODA through other, less aid-oriented departments, like the National Security Council and the Ministry of Defense, under the auspices of “addressing the root causes of global instability,” the U.K.’s new aid strategy states. The strategy also says it aims to work with other OECD member countries “to modernize the definition of ODA at the OECD.”

Asked whether a new definition for ODA could be in the works, Solheim said, “We will open up that discussion in our high-level meeting in February, but I don’t think we can anticipate major shifts in the midst of the present market crisis.”

The OECD-DAC’s Yasmin Ahmad offered more detail: “We’re going to be looking into making the rules more comparable and applicable among members,” she told Devex.

The data OECD receives from members is not always comparable since each country has its own way of looking at refugees and asylum seekers, she added.

Some countries interpret a refugee’s “first year” as beginning whenever a refugee applies for asylum, even if he or she is applying from outside the country. Others believe the year doesn’t begin until an asylum seeker’s application is accepted, or until the refugee sets foot in his or her new country.

There is also talk of possibly increasing the allowable cost time frame to two years, ONE’s Harcourt told Devex. The average period of displacement, according to the Office of the United Nations High Commissioner for Refugees, is now 17 years.

While there are already efforts to limit the amount of ODA spent on refugees in-country — Sweden just capped the amount at 30 percent of their total aid budget — Ahmad and Harcourt still expressed concern over the trend.

Solheim on the other hand, pointed out that Sweden and its 30 percent cap is the exception that proves the rule.

“Sweden is especially generous with refugees, the share is much bigger there,” he said, adding that Sweden’s government is still  “fully committed to meeting 1 percent [of GNI] in aid.”

The average percent of ODA as GNI dropped to less than 0.3 percent in OECD countries in 2014, the data shows, a signal that the bar set by Sweden or even the U.K. — whose aid budget is enshrined in law at 0.7 percent of GNI — might be too lofty for other member countries.

“The 0.7 GNI target is important, and it must not be forgotten,” Ahmad said. “But I think we need to be realistic.”

Ahmad emphasized instead the need to focus on maintaining support to LDCs to make sure aid reaches the world’s poorest. Indicators that aid to LDCs will continue to slide, meanwhile, offer a bleak picture for two of the more hyped modes of development: concessionary loans and private investment.

Another reason for the drop in aid to LDCs, Ahmad said, is the shifting emphasis on alternative forms of development financing in lieu of traditional grants.

Donors are more hesitant to offer concessionary loans to LDCs given the risk, so a shift to replace traditional grants with loans means more aid is being sent to middle-income countries, which hold fewer risks for donors and investors. On the other hand, the OECD put in place new incentives in 2015 for donors to extend loans to LDCs, and Ahmad said the impact of this initiative — figures are due out in April — will put into sharper focus the role of loans and investment in aid strategies.

“With countries tightening up aid budgets overall, we see donors trying to find ways to extend the life of their aid budgets by turning more and more to loans,” Harcourt said.

But Solheim warned against those “on the right wing who say you can replace aid with investment — it’s impossible.”

On the other hand, he told Devex: “We should ridicule the extreme leftists, who say that we don’t need private investment. There’s no way we can make a the green shift of economy without heavy private sector involvement in solar energy or in new cars or in hydroelectric power plants or whatever it might be. So we need both.”

The key, Solheim explained, is to think new, and the Syrian refugee crisis is indeed bringing new stakeholders to the table. Both Saudi Arabia and Qatar have just asked to join DAC as participants, which shows they want to be part of the global aid system, he said.

“We had a constructive dialogue with China, but their entire system is in transformation,” he added. “We need a new system that is embracing everyone.”

Meanwhile, Solheim said, Europe could do more.

“We all know that there is a good number of former developing nations who are now much richer than some European nations per capita. So if you ask, say, Bulgaria or Romania or Ukraine to consider it.”

Associate Editor Kelli Rogers contributed reporting.

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