DFID promises 'no accounting tricks' to count CDC profits as aid

Photo by: CDC Group

LONDON — The top civil servant from the United Kingdom’s Department for International Development has said there are no current plans to change the way the department reports official development assistance through its development finance institution, CDC — but said this could change in the future.

“Let me reassure you, without doubt, that there are no accounting tricks and no double counting.”

—  Matthew Rycroft, permanent secretary, DFID

Speaking on Wednesday before the International Development Committee, DFID’s Permanent Secretary Matthew Rycroft went some way to allaying concerns about the department’s plans to count CDC profits as ODA, when he told them DFID would act within the rules, but was also prepared to break them.

“The U.K. has up until this point always chosen ... the institutional approach. We score the ODA when it passes from the Treasury or DFID to the CDC … and in the future ... if we so wish … we have a choice. We don’t have to stick with the institutional approach, but we are sticking with it for now,” he said, adding that, “we reserve the right, under the rules, to choose in the future, but rest assured we will act within the rules.”

The permanent secretary also strenuously denied that DFID was trying to game the system to reduce the amount of new ODA money it has to pay to meet the U.K.’s target of spending 0.7 percent of gross national income on aid.

“Let me reassure you, without doubt, that there are no accounting tricks and no double counting ... Anyone who has interpreted anything that anyone has said from the department in that direction has misunderstood,” Rycroft said in response to a question from IDC member and Labour member of parliament Lloyd Russell-Moyle.

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His comments come in the wake of October’s statement by the Secretary of State for International Development Penny Mordaunt that she wants reinvested CDC profits to be classed as ODA so they can count toward the country’s aid spending targets. This is currently not allowed under the internationally agreed ODA accounting rules set by the Organisation for Economic Co-operation and Development’s Development Assistance Committee.

Aid experts and NGOs are concerned that such a move would reduce the overall aid budget by double counting some funds and would go “toward the part privatization of the funding of ODA,” Samantha Attridge, a senior research fellow at the Overseas Development Institute, told Devex at the time of the announcement. It could also lead to volatility in the aid budget, some said.

Members of the OECD-DAC have been debating the issue of how to measure the contribution of loans and other private finance to ODA for years. While it has produced some provisions, including safeguards against double counting, a final set of rules has yet to be agreed. It was meant to be published this year but has been delayed due to disagreements.

Some NGOs now say they fear that the U.K. could take advantage of the lack of clarity to switch their counting method — from an institutional approach to an instrumental approach — in order to capture CDC profits as ODA.

With the rules in flux, Rycroft’s assurance that DFID will “act within the rules” was not wholly reassuring to some NGOs.

“Although safeguards haven’t yet been finalized in the OECD-DAC negotiations, the consensus has been that these should prevent donors from being able to double count their aid delivered through private sector instruments. Any donor changing their reporting methods should stick to this principle,” Gideon Rabinowitz, policy and advocacy manager for development finance at Oxfam, told Devex.

Russell-Moyle said he was unconvinced by Rycroft’s answers during the IDC session.

“Mordaunt’s … own officials could not explain to the IDC how counting money on the way in to CDC as aid, and then switching to counting as aid money that CDC makes by investing that aid, is anything other than an accounting wheeze,” he told Devex.

During the hearing, Rycroft also told MPs that Mordaunt’s controversial October speech, delivered at CDC’s headquarters in central London, was part of a broader move to explore how to better leverage British private investment, including potentially British pension funds, to have development impact in low-income countries.

The U.K. government has said it will plough up to £3.5 billion ($4.46 billion) into CDC over the next five years.

About the author

  • Edwards sopie

    Sophie Edwards

    Sophie Edwards is a Reporter for Devex based in London covering global development news including global education, water and sanitation, innovative financing, the environment along with other topics. She has previously worked for NGOs, the World Bank and spent a number of years as a journalist for a regional newspaper in the U.K. She has an MA from the Institute of Development Studies and a BA from Cambridge University.