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Letter from the DAC Chair to Ministers outlining work to update the DAC statistical system and boost efforts to increase the amount and effectiveness of aid. Read more here: http://oecd.org/dac/financing-development.htm
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Chairman
DEVELOPMENT Assistance Committee
2, rue André-Pascal www.oecd.org 75775 Paris Cedex 16, France [email protected]
ES(2013)67 Paris, 10 January 2014
To DAC Ministers and Heads of Agency
Modernising Development Finance
The development finance landscape has been transformed. The world has witnessed development progress at an
unprecedented scale and pace over the last decades. Poverty has fallen rapidly. Trade and investment flows,
domestic resource mobilisation and private finance continue to increase in a growing number of developing
countries. Many of those countries are themselves becoming important donors. These are great development
successes, and development cooperation has played a central role in bringing them about.
Against this background, the Development Assistance Committee received a ministerial mandate to modernise
the measurements for development finance. This will culminate on 15-16 December 2014, when Ministers and
Heads of Agency will be asked to decide on the way development cooperation will be measured in the future.
Taking this agenda to a successful conclusion in December 2014 will require permanent engagement by capitals.
Your personal commitment and that of fellow ministers and heads of agency is essential to enable the preparation
of decisions on key parameters over the next twelve months, including:
- The modernisation of the Official Development Assistance (ODA) measurement.
- The possible establishment of a wider concept of development finance.
- The connection between development and climate finance, as well as other global public goods.
- The representation of recipient benefit and a stronger focus on results.
- Addressing concerns of emerging economies about ODA to measure South-South Cooperation.
The decisions we will take must ensure that our measurements remain relevant in today’s world. They must
respond to the need for modernisation while safeguarding the credibility of our commitments. Both are essential
for our field of policy. ODA remains an essential development resource, especially in Low Income Countries,
where it still accounts for 40 percent of fiscal revenues and 70 percent of external financing. But its role is
changing, as catalysing other resources and enhancing their development impact becomes ever more important.
The definition of official development finance has an impact on how we can work towards development goals.
The preparation of a new global development framework for the Post-2015 period provides a unique window of
opportunity to modernise development and to raise the global profile and impact of our work. The Annex sets out
the process by which we aim to reach the decision point in December 2014.
The key determinant for the outcome will be political leadership. I invite you to engage actively in shaping this
work, to flag contributions you may wish to make on particular issues, and to call on OECD to contribute to
domestic discussions you may undertake. I will be at your disposal for a personal discussion or participation in
events.
Yours sincerely,
Erik Solheim
1
Annex
Modernising Development Finance Roadmap to the DAC High Level Meeting, 15-16 December 2014
Context
The DAC High Level Meeting of December 2012 provided a comprehensive mandate for work on
new ways to measure development finance, acknowledging the need to modernise development
finance in light of the profound changes of the development and economic landscape. This work
should ensure the continued relevance and credibility of key measurements of development finance.
As appropriate, new measures might be introduced, and existing ones, notably Official Development
Assistance (ODA), modernised.
The international community is working towards a new development framework to be agreed at a
United Nations Summit in 2015. The context for financing for development has changed dramatically
since the Millennium Development Goals were agreed. ODA continues to be an essential resource for
development, but many countries, especially in the middle income group, have access to a much more
diverse range of sources of finance – domestic and international, public and private. New actors are
ever more active, and the financing of development challenges with global dimensions must be
addressed.
Engagement and coordination with UN preparations for a post-2015 resource framework
UN offices working on the preparation of post-2015 development goals are looking to the DAC, as the
traditional keeper and guardian of ODA statistics, to contribute to the process through its work on
modernising external development finance. The DAC needs to finalise its work by the end of 2014 so
that the outcome of this work can be taken into account by the relevant UN processes on the
development agenda of the future. Any changes in measurement would be understood to take effect
for flows from 2016 onward.
The DAC Secretariat advances work on modernising the measurement of external development
finance in close coordination with the relevant UN processes. It is also engaging with developing
countries, civil society and other international organisations to understand their priorities and concerns
in relation to this issue. DAC and other OECD Members are encouraged to take active part in this
effort.
Key events and decision-making process in the DAC
At the High Level Meeting on 15-16 December 2014, DAC Ministers and Heads of Agency are
expected to reach final agreement on the modernisation of ODA and on the creation of a new measure,
including all corollary policy issues. Two Senior Level Meetings on 3-4 March and 7-8 October
2014 are key milestones to advance towards this decision point. DAC meetings are scheduled
throughout the period until December 2014 at roughly monthly intervals to prepare the final
agreement. Key dimensions and expected evolution of their treatment in preparation of the DAC High
Level Meeting are outlined below:
1.Modernising Official Development Assistance (ODA)
The two main concerns the process has to address in relation to ODA are: 1) the need to maintain the
credibility of ODA, and thereby development co-operation; 2) the criticism that ODA currently fails to
capture some development-related efforts that are relevant to developing countries, such as
investments generated through guarantees or related to peace-keeping; while including expenditures
that would not be relevant to their capacity to develop, in particular those incurred in donor countries,
e.g. refugee costs or imputed student costs.
Moreover, specific issues include the eligibility of countries to receive ODA, which is based on their
income level and considered against the background of many rapidly growing middle income
countries; lack of agreement among DAC members on a uniform interpretation of concessionality;
and perceived disincentives in the measurement system of instruments that mobilise private
investment or help generate successful business models for development, such as development
guarantees or equity investments and seed capital.
The first Senior Level Meeting on 3-4 March 2014 should reach a basic understanding on the scope
and priorities for modernising the ODA measure and its relation to any new measure(s) so as to
provide guidance on the focus of further technical work. This should cover: the approach to
defining/treatment of concessionality; agreement in principle on whether or not to adjust recipient
eligibility criteria for ODA; and agreement on the principle to adjust the existing definitions so as
to incentivise resource mobilisation and avoid accounting methods that imply disincentives for
economically successful interventions.
At the second Senior Level Meeting on 7-8 October 2014, the DAC should reach a more
comprehensive understanding on all key parameters for modernisation of ODA, including the
specific relation to and concrete boundaries with any new measure(s). To the extent necessary, this
understanding should resolve any final questions regarding concessionality; establish a clear
approach to limiting or differentiating eligibility for different country groups; and cover specific
adjustments to the ODA measure to incentivise resources mobilisation and avoid disincentives for
economically successful interventions.
2. New Measure(s)
The mandate to elaborate a proposal for a new measure of total official support for development was
agreed in recognition of ODA as a core development resource that remains essential for many
countries. The mandate asks to ensure that ODA be directed where it is most needed or can best
leverage other resources. The idea of recipient benefit has been a guiding theme in this regard, with a
view to account better for the actual resources that are transferred to developing countries to support
their development process.
A central concern of the wider measure is then to capture flows that are relevant for development
irrespective of direct budgetary effort involved, in particular those mobilised with the help of official
interventions, such as less concessional development loans. Moreover, the question needs to be
addressed of whether and how to include, count and differentiate, flows that may not have a primary
development objective, but are important resources for development, such as private foreign
investments.
The first Senior Level Meeting on 3-4 March 2014 should reach a basic understanding: on the
scope, preferences and priorities for a new measure; the basic approach to recipient benefit/receipts
that addresses major considerations of measuring and monitoring development finance from the
recipient perspective.
At the second Senior Level Meeting on 7-8 October 2014, the DAC should reach a more
comprehensive understanding on: the key parameters of a new measure, including major technical
aspects and questions related to the accounting of different flows; key parameters for addressing
the recipient benefit dimension; the specific relation of the new measure to ODA.
3. Climate Finance
The post-2015 development framework is expected to bring together development cooperation and
sustainable development/climate change finance into one global framework. DAC statistics monitor
climate-related and other environmental aid through its “Rio markers” and the environmental policy
marker, capturing information on every aid activity. Work is underway to further improve the quality
and coverage of the reporting and to extend the tracking of climate change and other environmental
finance beyond ODA.
3
The DAC reporting system provides information on the actual flows that are taking place to address
climate change. Continued refining of the methodology allows capturing an increasing range of flows
beyond ODA, providing a real-world picture of the sources, destinations and trends of different flows
of climate-change related finance. This makes these data essential to focus attention on the concrete
action that is taking place, and what can be done to leverage required resources, without prejudice to
ongoing discussions at UN Framework Convention on Climate Change on nominal targets.
The first Senior Level Meeting on 3-4 March 2014 should aim to reach a basic understanding on
how climate and environment-related official development finance, (as defined with the Rio and
Environment markers, adjusted as appropriate), can form the basis fora future measurement
system.
At the second Senior Level Meeting on 7-8 October 2014, the DAC should be in a position to
suggest inputs to a methodology for the UN Framework Convention on Climate Change for
assessing climate-related flows, and possibly also for the Convention on Biodiversity, in order to
avoid duplication and ensure compatibility between new and existing tracking systems and
processes where appropriate.
4. Global Public Policies
For both modernising ODA and for elaborating a new measure, it will be important to consider the
treatment of expenses related to developing countries but that involve issues broader than
development, such as in-donor refugee expenditures or peace and security commitments in developing
countries. While arrangements for their treatment in ODA exist, there have been regular requests or
concerns to clarify or adjust the eligibility of these activities.
The first Senior Level Meeting on 3-4 March 2014 should reach a general understanding on the
need to adjust current treatment of these flows in ODA, and the scope of their coverage in a new
measure.
The second Senior Level Meeting on 7-8 October 2014 should yield an understanding on any
specific adjustments of the ODA treatment of such flows, and the specific extent to which these
would be covered by a new measure.
5. Emerging Providers, including South-South Co-operation
An increasing number of non-DAC countries report their development efforts to the DAC. However,
there are reservations among many emerging providers about the ODA measure. Decisions of non-
DAC providers to report to the DAC are and will remain voluntary. Political considerations on the part
of non-members are an important factor. However, concerns have also been raised that ODA tends to
underrepresent South-South Co-operation in the way it is reported. These concerns must be addressed
credibly.
The first Senior Level Meeting on 3-4 March 2014 should agree to address concerns of emerging
and South-South Cooperation providers in relation to technical aspects of ODA as an adequate
measure to represent their efforts.
At the second Senior Level Meeting on 7-8 October 2014, the DAC should reach an understanding
on the specific adjustments to address emerging provider concerns.