How much of OECD-DAC donors' aid is given in grants?

Angel Gurría, secretary-general of the OECD, with Pedro Passos Coelho, prime minister of Portugal. The country is the only OECD-DAC member to fail the 90 percent grant target for LDCs in both 2011 and 2012. Photo by: OECD

In 1972, members of the Development Assistance Committee of Organization for Economic Cooperation and Development agreed to soften the terms of aid committed to recipient countries by setting an 84 percent target grant component in their official development assistance, with even lighter terms for the least developed countries. It was only a year earlier that the United Nations had introduced a similar concept.

By 1978, the final targets — at least 86 percent of aid should be in the form of grants, while for LDCS, at least 90 percent of annual assistance should have a grant element — were set by the OECD-DAC.

More than three decades since, while most ODA now comes in the form of grants, loans still make up a significant component of aid.

Among OECD-DAC members, only France and Portugal fell below the 86 percent norm in both 2011 and 2012, the latest years for which figures on OECD-DAC donors’ compliance with the 1978 terms and recommendations are available. The grant element of France’s ODA commitments in these two years was at 84.9 percent and 79.5 percent, respectively, while for Portugal, it was at 85.8 percent and 84.6 percent.

Austria, Canada, the Czech Republic, Denmark, Finland, Greece, Iceland, Ireland, Luxembourg, the Netherlands, New Zealand, Norway, Slovakia, Sweden, Switzerland, the United Kingdom and the United States all had 100 percent of their ODA commitments in the form of grants in both years.

Still, countries whose ODA as a percentage of their gross national income was below the OECD-DAC average — in 2012, the norm was at 0.24 percent — were considered by the OECD-DAC as not having met the 86 percent target. This provision eliminates Czech Republic (0.12 percent), Greece (0.13 percent), Iceland (0.22 percent), Italy (0.15 percent), South Korea (0.2 percent), Poland (0.09 percent), Slovakia (0.09 percent), Spain (0.22 percent) and the United States (0.19 percent) in 2012.

Meanwhile, only Portugal fails the 90 percent grant target for LDCs in both 2011 and 2012, when it had 78.4 percent and 81.1 percent of its aid channeled through grants. Portugal is also the only OECD-DAC member deemed noncompliant with the 1978 provisions when the 2010 to 2012 averages committed by all OECD-DAC countries to each LDC — the norm was at 86 percent — are considered. Except for France, Japan, South Korea and Spain, all OECD-DAC members committed 100 percent of their LCD aid through grants in both 2011 and 2012.

Portugal is the only OECD-DAC donor that has failed to meet the 90 percent target for LDCs in 2011 and 2012. View chart’s larger version.

While not among the largest OECD-DAC donors, Portugal is the bilateral donor that disburses most of its assistance to sub-Saharan African countries, particularly Portuguese-speaking ones such as Mozambique, Cape Verde and Sao Tome and Principe, which are also its former colonies. From 2009 to 2013, Portuguese aid to sub-Saharan Africa ranged from 54.5 percent (2009) to as high as 85.3 percent (2011). In the same period, Portugal was the OECD-DAC donor that consistently disbursed the highest percentage of its ODA to the region.

The composition of ODA is likely to be subject to further debate as the definition of aid is being reconsidered.

A side event at last year’s Development Cooperation Forum in New York noted that, while loans, as long as they are provided with the proper safeguards, are helpful to middle-income countries that need to fund large-scale infrastructure projects, there is also a need to set up incentives for donors to channel a large part of their aid to LDCs in the form of grants, which the poorest countries need to support basic social services.

As 2014 drew to a close, the OECD-DAC agreed that “more concessional loans will earn greater ODA credit than less concessional loans” — a move pushed for by France, Germany and the European Union, but resisted by the United States and Nordic countries like Sweden, which were wary that counting more loans as ODA could lead to another debt crisis.

At the third International Conference on Financing for Development in Addis Ababa, Ethiopia, this July, the issue of how development assistance should be measured will surely be an important item on the agenda.

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About the author

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    Anna Patricia Valerio

    Anna Patricia Valerio is a Manila-based development analyst focusing on writing innovative, in-the-know content for senior executives in the international development community. Before joining Devex, Patricia wrote and edited business, technology and health stories for BusinessWorld, a Manila-based business newspaper.