More aid spent through loans but LDCs see first ODA increase since 2010

The OECD headquarters in Paris, France. Photo by: OECD / CC BY-NC-ND

LONDON — The volume of lending to developing countries by bilateral donors has increased by 13 percent compared to 2016, new figures from the Organisation for Economic Co-operation and Development revealed Monday.

Overall, aid to developing countries fell slightly, by 0.6 percent, according to the 2017 data from the OECD’s Development Assistance Committee. Some aid experts met the news with concern, pointing out that loans tend to go to middle-income countries and safer sectors such as manufacturing, while leaving out lower-income countries and social investments such as education.

Chair of the DAC Charlotte Petri Gornitzka warned that the committee’s members “should always be aiming to invest official development assistance for long-term purposes in countries most in need and be cautious in using it for loans to middle-income countries.”

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However, despite the increased proportion of aid being spent in loans, the DAC also revealed that the volume of aid going to the least developed countries increased by 4 percent to about $26 billion — the first time this figure has risen since 2010.

“This 4 percent increase is really good news and shows DAC members are living up to the commitment they made at the 2016 DAC meeting to reverse this trend,” Julie Seghers, advocacy advisor at Oxfam, told Devex.

“At the same time, looking at the figures, that’s [still] only 18 percent of total ODA that goes to LDCs,” she said. “It’s just not enough. We think more ambitious action must be taken for the poorest countries.”

Jeroen Kwakkenbos, policy and advocacy manager at Eurodad, was also cautious about the figures. "The increase in aid to LDCs goes against the trend of recent years, which is positive. But the increase is only small, and seems largely due to initiatives by a few DAC member states,” he told Devex. “It doesn’t speak to a comprehensive systemic shift by the donor community at large,” he said.

The new data also shows a 6.1 percent increase in humanitarian aid in real terms compared to 2016, as well as a 1.6 percent decrease in aid spent through humanitarian organizations. Notably, Australia’s share of ODA decreased by 16 percent in 2017, in part due to large cuts to its multilateral contributions.

Rise in loans

Reflecting on the growing amount of ODA spent through loans, Kwakkenbos noted a degree of uncertainty around the use of concessional financing. “It’s difficult to tell at this stage how concerning the ongoing increase is,” he said. “We can’t say for sure how worrying this is without more data on the terms of the loans and where they are allocated.”

“Data from previous years shows that some donors tend to offer loans on terms that are nearly commercial. This is a missed opportunity to maximize the impact of ODA, and [it] risks creating unsustainable debt burdens,” he added.

Head of development statistics at the DAC, Yasmin Ahmad, explained that the increase in the volume of loans is the result of an overall ODA increase in countries that favor loans. For example, “France [increased its ODA] by 14.9 percent in 2017 over 2016, and Japan by 13.9 percent in real terms, and they give large shares of their bilateral ODA in the form of ODA loans,” she told Devex.

Ahmad echoed Petri Gornitzka’s caution about the use of loans by donor countries, which “build up a debt burden, and countries need to ensure their debt sustainability,” she told Devex.

At the DAC 2014 high-level meeting, the 26-member body agreed to change the rules around counting concessional loans as ODA. The DAC agreed that only loans to developing country governments would be ODA eligible. The rules will come into force next year, and should signal a shift in the amount of lending able to be counted as ODA.

The vast majority of ODA spent through concessional lending comes from four countries: Japan, France, South Korea, and Germany.

About the author

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    Molly Anders

    Molly Anders is a U.K. Correspondent for Devex. Based in London, she reports on development finance trends with a focus on British and European institutions. She is especially interested in evidence-based development and women’s economic empowerment, as well as innovative financing for the protection of migrants and refugees. Molly is a former Fulbright Scholar and studied Arabic in Syria, Jordan, Egypt and Morocco.