OECD-DAC WORK ON NEW WAYS TO MEASURE DEVELOPMENT FINANCE

THE DEVELOPMENT ASSISTANCE COMMITTEE:

ENABLING EFFECTIVE DEVELOPMENT

Serge Tomasi Deputy Director

Development Co-operation Directorate OECD

12 April 2014

Meeting Objectives and Outline

• Obtain civil society views on: 1. How to reform the current ODA measure;

2. Devising a new headline measure of Total Official Support for Development (TOSD);

3. How to ensure more concessional resources are channelled to countries in greatest need.

Sources of external finance beyond ODA are becoming more prominent

ODA accelerating for mainly LMICs and

UMICs…

…but not for LDCs and fragile states

* Figures for 2012-2016 are based on CPA estimates from the latest FSS

Mandate from DAC Ministers

By end 2014/early 2015

1. Elaborate a new measure of total official support for development (TOSD)

2. Better represent donor effort and recipient benefit of development finance

3. Investigate whether there is a need to modernise the ODA concept

4. By 2015: a clear, quantitative definition of ‘concessional in character’

What is ODA? - definition

• …flows to countries and territories on the DAC List of ODA Recipients and to multilateral development institutions

• …provided by official agencies (national, state and local levels)…

• and administered with the promotion of the economic development and welfare of developing countries as its main objective;

• and [that are] concessional in character and convey… a grant element of at least 25 per cent (calculated at a rate of discount of 10 per cent).

What’s wrong in accounting for ODA?

Only one headline figure – net ODA – which:

Overestimates actual transfers of aid to developing countries by mixing flows with in-donor costs;

focuses on donor effort as opposed to providing recipients with a clear picture of available resources;

Discourages the mobilising of private funds through risk-mitigation instruments and the development of new innovative financial mechanisms.

Current concessionality rules

GRANT ELEMENT TEST PURPOSE

WORLD BANK/IMF Minimum of 35% calculated at a discount rate of 5%

To evaluate a country’s debt sustainability position

OECD-DAC MEMBERS Minimum of 25% calculated at a discount rate of 10%

To estimate donor solidarity effort

Is it still a concession? • A donor can borrow at 2% and lend those funds at 4% and meet the

OECD-DAC grant element test if the loan exceeds 12 years. Is it still

a concession when the blender is making a gross profit of 2%?

• Yes, because the borrower couldn’t access those funds at anywhere

near 4%;

• No, because there is little or no donor effort involved.

Modernised ODA

• Score only concessional component (i.e. grant equivalent = grant element * face value) of loans instead of their full face value

• A truer measure of donor budgetary effort

• Reward effort as opposed to failure

• Investigate use of risk-adjusted discount rates

• Address criticism of generous debt relief reporting and volatility in ODA levels

• Standardise the reporting of in-donor expenditures counted as ODA

• Improve legitimacy, transparency and comparability

A new measure of TOSD

• A wider outer circle to complement, not replace, ODA and support the post-2015 sustainable development agenda

• Looking at including non-ODA finance for development, peace and security, climate and other global challenges

• Need to distinguish between official flows and those private flows mobilised by official action

A two-circle approach from a provider’s perspective

Modernised ODA

measure focusing on

grant equivalent

Total official support

for development

Private finance

mobilised by official

action?

.

Climate change mitigation

Refugee costs first

year

Equity, mezz.

finance

Peace and

security

ODA

Possible coverage of TOSD

No estimates available

Grant Equivalent of ODA loans Capital of ODA

loans minus G.E.

Amount mobilised by guarantees

AF XCR

Export credits

Carbon market flows

Co

re f

un

din

g to

UN

(f

ully

an

d p

artl

y O

DA

-el

igib

le a

gen

cies

)

Cu

rren

tly

no

n O

DA

-el

igib

le s

har

e o

f co

re f

un

din

g to

UN

Refugee costs outer

years

UNDPKO Peace

missions

Other UN mandated

peace missions

?

Human rights

Human rights

Capital of OOF loans minus

G.E.

? Amounts mobilised

?

Modernised ODA and TOSD

Grant Equi.

Better targeting of concessional finance

• DAC List of ODA-eligible recipients 149 countries/territories of which 95 are MICs.

Graduation threshold of $12,615 ($7115 for IBRD)

• Maintain status quo (countries graduating anyway)

• Further work on at targets and incentives (e.g. 50% to LDCs) to direct ODA to countries in greatest need

Questions for discussion

• What needs to be done to ensure that ODA remains a credible measure and to reinforce donors’ efforts to live up to their commitments?

• Should ODA accounting be based on flows or the concessional component of any financial instrument (its grant equivalent)?

• Which approaches to measuring concessionality might be acceptable to both donors and recipients?

• How might the standardisation of the reporting of in-donor costs contribute to ODA being a more credible measure of donor effort?

• What should be included in a new measure of TOSD? How should the inner boundary between ODA and TOSD be delineated?

Thank you!

http://www.oecd.org/dac/Financing-Development.htm