ODA redefined: What you need to know

Following high-level meetings last week in Paris at the Organization for Economic Cooperation and Development, aid practitioners will soon see changes to the way official development assistance is spent, monitored and reported. The definition of ODA will now include more peace and security-related costs, certain costs related to “countering violent extremism” and will give donors greater incentives to use non-grant financial instruments to encourage private sector development in least developed countries.

While the OECD’s Development Assistance Committee has yet to release specific safeguards for the new and amended guidelines, many in the aid community have responded with cautious optimism to the shifts, with an eye on making sure greater flexibility and broader classification of ODA doesn’t lead to aid abuse.

“Governments say they have spelled out a series of safeguards to frame the use of aid for security-related activities,” said Sara Tesorieri, deputy head of Oxfam’s EU office. “However, they have to make sure there is a mechanism ensuring that these will be enforced and properly monitored on the ground.”

Here are four key takeaways from amendments to the ODA guidelines.

Little clarity on in-country refugee costs

One of the most controversial items on the agenda in the lead up to the meetings in Paris was the need for clarification of how member countries should use ODA within their own borders to deal with the arrival of vast numbers of refugees fleeing the crisis in Syria. Since March 2011, the crisis has displaced more than 9 million Syrians, most of which remain in Syria while 2 million have fled to neighboring countries. Approximately 150,000 refugees have declared asylum in the European Union, according to the Office of the United Nations High Commissioner for Refugees. 

EU member states have pledged to resettle 33,000 more, the majority of which will be resettled in Germany. The OECD-DAC rules permit the use of ODA to bolster national facilities and help support resettled refugees, but according to OECD-DAC’s Yasmin Ahmed, the rules vary widely and reporting has been inconsistent. Last week’s meetings offered little clarity.

“There’s no real decision yet on refugee costs yet, though the DAC said it is looking at standardizing how countries spend ODA in-country on refugees to make it more consistent,” Amy Dodd, director of the U.K. Aid Network, told Devex.

While OECD countries widely adhere to the rule of using ODA for only the first year of a refugee’s life in their new country, application of the rule varies widely donor to donor. Some countries begin counting the year when the refugee’s asylum application is approved, while others begin counting after the refugee physically arrives in their new country. The OECD-DAC pledged to produce a standardized set of guidelines for using ODA in-country by the end of 2016.

The OECD-DAC communique, issued Friday, commits to “identifying and addressing the root causes of conflicts, forced displacement, and refugee flows,” and pledges to “improve the consistency, comparability, and transparency” of reporting costs.

At the same time, the DAC re-emphasized its commitment to reverse the decline in aid spending to least-developed countries and fragile states, notably adding “conflict-affected contexts” to the list; a clear nod to those middle-income countries in the region in need of donor support  — such as Jordan, Lebanon and Turkey — currently hosting the majority of Syrian refugees and which often serve as a thoroughfare for refugees seeking passage to Europe.

Peace and security spending

Sources attending the meetings from European Network on Debt and Development, a network of NGOs in 16 EU countries, confirmed that the U.K. government followed through on promises made in its recent aid strategy to push for an expansion of the definition of ODA to include “peace and security” costs, as well as costs related to “countering violent extremism.”

Sweden, on the other hand, led the charge against modifying the ODA definition, fearing the shift could clear the way for the militarization of aid.

Notably, the DAC will maintain the use of its “development test” when classifying these costs. The test assesses ODA eligibility based on how integral the expense is to development outcomes. The communique reaffirms that “financing of military equipment or services is generally excluded from ODA reporting and that development cooperation should not be used as a vehicle to promote providers’ security interests.”

At the same time, ODA will now comprise certain military, security and police costs insofar as they contribute to aid outcomes and operate as a last resort, for example in conflict areas or military zones where aid professionals are unable to deliver the same outcomes.

“Whilst it’s well and good to use the military to transport goods in a crisis zone when you have to, it’s not really our first choice, and we want to make sure there are no blurred lines,” Dodd said. “It’s important to ask, are we doing this to help support our military spending, or are we doing it in order to actually get supplies?”

Another frequent example cited at the meetings was the funding of training in human rights and countering gender-based violence for local military and police forces, ideally carried out by development partners, but, the communique states, “military-to-military” training is permissible as a last resort. ODA still cannot be spent on “regular” military costs, meaning salaries, equipment or equipment maintenance. Using aid as a provision to local military or police forces is also still not reportable as ODA.

Finally, one important consideration is the DAC’s definition of “violent extremism,” which adopts an ideological and aid-centric understanding of the term — “promoting views which foment and incite violence in furtherance of particular beliefs, and foster hatred which might lead to intercommunity violence.”

New incentives for private sector engagement

In 2014 the OECD-DAC put in place several restrictions on the interest rates and concessionality of loans given to developing countries based on national income levels. While those efforts sought to decrease unfair profitability of some financial instruments to impoverished countries and protect domestic resources, many countries, such as the U.K., pointed to the disincentives created for donors to invest in high-risk, low-income countries. Last week’s meetings built on those objections.

Along the lines of the previous system, the DAC still rewards cheap loans to least-developed countries, but now the DAC guidelines take into greater account donors’ contributions to other financing vehicles and institutions — such as multilateral development banks — and will assess those institutions and reward donors for investing in the most development-minded ones.

Under the modified DAC guidelines, ODA eligibility will also take into account the effort and risk undertaken by the donor’s investments in a developing country, while the financial flows themselves will fall under other categories beneath the DAC’s new framework, known as the Total Official Support for Sustainable Development.

First, donors will have a choice of assessing their contributions’ ODA eligibility either when the funds transfer to the financial vehicle — including multilaterals such as the World Bank and Global Fund — when the funds move from the vehicle to the recipient. The idea is that the two approaches “should generate, over time, comparable ODA figures for comparable donor efforts and not inflate ODA,” according to the communique.

Secondly, reporting flows as private sector investment will require an assessment of the vehicle itself, to ensure “the extent to which it has the economic development and welfare of developing countries as the main and primary objective of its operations,” and provides finance that is “additional.”

While development stakeholders and experts expressed concern over the lack of a clear definition of “additionality” in this context, or how an investment or instrument by a donor adds impact where investment may have occurred anyway, the shift has been well-received as a way to protect aid and investment recipients from overly profit-minded private sector practices.

Reform of OECD-DAC’s governance is ‘ongoing’

In an era of great economic disparity and a spectrum of promising — if still untested on the large scale — financial instruments, the OECD-DAC took the opportunity provided by the Paris meetings to reconfirm its commitment to governance reform and modernization of its policies.

TOSSD, the DAC’s new framework, while still under construction, seeks to make the definition of aid flows more inclusive and sustainable in light of increasing private sector investment and the growing use of multilateral institutions by government donors. TOSSD will ideally create an umbrella category for official development flows, with sub-categories to capture various instruments and their relationship to measurable development outcomes.

Dodd pointed out that the meetings brought about, in the context of the TOSSD, a renewal of discussions about development effectiveness, and a new commitment to make the development of TOSSD as inclusive as possible of civil society and other aid stakeholders. It was also a way to spark conversations about effectiveness across the spectrum of aid modalities.

“Aid in development effectiveness seems to have slipped off the agenda in recent years, but actually people are coming back to it,” Dodd said. “We need to make sure we know how aid is effective, how it’s supporting country ownership, are [donors] transparent, are we accountable to each other in a useful way? All the better if that turns into action.”

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