OECD DAC clarifies rules on in-donor aid spending for refugees

Charlotte Petri Gornitzka, chair of the OECD Development Assistance Committee, during the presentation of the report, “Responding to Refugee Crises in Developing Countries: What Can We Learn From Evaluations?” Photo by: MarcoIlluminati / OECD / CC BY-NC

PARIS — The committee that governs the rules on aid spending has adopted new guidance on when and how money spent on supporting refugees can count as aid at its high-level meeting in Paris, France.

Delegates of the Development Assistance Committee — representing the world’s 30 richest donor countries — gathered at the headquarters of the Organisation for Economic Co-operation and Development on Monday and Tuesday. The committee works year-round to modernize rules for official development assistance but meets every two years for the high-level meeting, where it takes stock of developments and tries to reach a consensus on proposals. Changes to the aid rules must be agreed unanimously.

This year marks only the second time in more than 40 years that civil society organizations were allowed to participate in the meeting.

The committee adopted long-sought guidance on how and when money spent on refugees counts as aid, both in developing countries — where 86 percent of refugees seek relief from crises — and in developed donor countries.

However, another proposal that was expected to take a high-profile position at the meeting — the U.K. government’s plan to allow the spending of overseas aid on wealthier but climate-vulnerable island states, following hurricane damage to U.K. overseas territories in the Caribbean — was withdrawn hours after it was proposed, sources present at the meeting told Devex. Although the U.K. delegation recognized it could not achieve consensus, the proposal is said to have sparked a key debate over ODA eligibility and “reclassification” after a crisis.

The committee was also unable to reach a consensus on clarification of the rules around the use of private sector instruments in aid.

Refugee spending in host countries

The DAC has now clarified how aid can be spent on refugees as they arrive in transit or host countries, an issue that has been a source of contention in recent years.

While more than 86 percent of refugees remain in the global south, donor countries have pushed for clearer guidance on how and when ODA can be spent domestically to support refugee arrivals.

For the first time, the DAC has offered a comprehensive list of ODA-eligible and non-eligible expenditure. Costs such as detention centers, border security and patrol, and the costs of returning failed asylum-seekers are now clearly excluded from ODA. Any spending on asylum seekers after their application is rejected, and on refugees determined to be “in transit” to other countries for resettlement, will also not be classifiable as aid.

The committee decided to retain the one-year limit, which means that ODA can only be used to support refugees during their first year in the host country, but clarified that the year begins from the date an asylum application is submitted. No cap was implemented on host country refugee costs, but the committee clarified previously vague guidance on costs incurred before or after the one-year period, as well as the cost of operations that serve either rescue or security purposes.

Winnie Byanyima, executive director of Oxfam International, who was one of the civil society leaders attending the meeting, said the charity stood by its belief that aid spent in donor countries should not count toward ODA, but welcomed the clarification of the rules, which she said would prevent double-counting and the repurposing of aid for security purposes.

However, Julie Seghers, policy and advocacy advisor at Oxfam, also said that clarification of the rules could give donors renewed confidence in reporting domestic costs as ODA.

“One issue we’re concerned about is whether these new rules will encourage countries currently not using ODA for in-country refugees to begin counting it as ODA,” she told Devex.

“This is something we have to watch closely, because it could lead to a lot of aid being diverted from developing countries to host countries.”

Private sector instruments: ‘One more year’

Another key issue debated at the meeting was the use of private sector instruments in aid. With a number of grey areas in how donors approach this, it has been the subject of debate for several years.

The DAC could not reach a consensus on large-scale PSI rules, with Germany, France, and Japan looking for greater latitude in spending through PSIs. Specifically, the committee hit a snag on how to establish the grant equivalents of PSI investments when determining aid eligibility.

However, the committee did approve “guidance” on the use of blended finance by donors, whereby ODA is used to offset the risk of investments made by private sector companies in developing countries. The principles, which are non-binding, offer broad strokes for donors hoping to engage in PSIs. The five principles include the imperative to: “anchor blended finance use to a development rationale”; “design blended finance to increase the mobilization of commercial finance”; “tailor blended finance to local context”; “focus on effective partnering for blended finance”’ and “monitor blended finance for transparency and results.”

For the time being, contributions from donors to DFIs will continue to be counted either as inflows to the DFI from the donor, or as outflows from the DFI to the developing country, through equity investments, loans, or guarantees.

Charlotte Petri Gornitzka, chair of the DAC, said work will continue to find a compromise that doesn’t give too much leeway to the donors’ own business interests abroad. A potential stop gap emerged in this year’s meeting as the committee seemed amenable to PSI “discount rates” to increase the ODA eligibilityx of some investments. The measure would offer a transitional compromise before moving to grant equivalents, but will likely be the focus as the DAC continues to search for a consensus.

“We’re close to a solution, but there are some issues that we couldn’t agree now. But we will have to continue to work on this so we don’t have blurred reportings,” Petri Gornitzka told Devex. “I think we all agree that we need to end up quite soon with something that members report along the same lines. It was tough but in a good spirit, so I’m hopeful that we just need another year,” she said.

Byanyima stressed to the committee that many PSIs aren’t ready for investment as the jury is still out on their effectiveness as poverty reduction tools.

“We have seen so many forms of private sector engagement, like [public-private partnerships] that aren’t working. We also believe there are some sectors where the private sector shouldn’t play a role, like education and health,” she said.

But she also said that PSIs are “a moving train.” No rules exist in the aid industry about how and when PSIs should be deployed, and donors are already investing as much as 5 percent of their annual aid budgets in DFIs.

As a result, Seghers said Oxfam is “worried that while [donors] are not deciding on anything, they are continuing to promote this very uncritical embrace of the private sector.”

But “we’d rather have no deal than a bad deal at this stage,” she said, “so we’re in no way pushing them to rush into some rules that don’t respond to all the concerns.”

DAC reform

This year marked a key shift in the decision-making process under reforms led by Petri Gornitzka, who took over as chair of the DAC earlier this year. Normally relegated to the fringes of the meeting, civil society organizations were able to weigh in on the debate — but NGO leaders present at the meeting said there is much more work to be done to make the decision-making process more inclusive.

“They have to consult with the people affected, with the communities affected. It’s very simple,” Oxfam’s Byanyima told Devex. “The OECD has been engaged in a long process of redefining development cooperation, but how can you do that without speaking to the people involved?”

The next step, she said — possibly a more important one — will be including representatives from the global south; those whose fate, in some cases, the DAC is negotiating.

Petri Gornitzka said it’s high on her agenda as well.

“We have voices now from accession countries, from emerging markets, we have CSO voices, and it was good,” Petri Gornitzka said. “I’m an impatient personality, I’m still here, but at the same time I respect the fact that it takes time.”

The approved mandate for DAC reform includes a push for outside voices — a critical step in opening up the DAC, often referred to as the “rich countries’ club.” Petri Gornitzka said increased transparency and greater attention to the growing reservoir of data will also play a role, as well as working more closely with parallel multilateral institutions to define and delineate contributions to the SDGs.

“We need to think through where we need to take the DAC to be helpful to others, how to relate to the U.N., the World Bank, to WEF, to civil society, with what contribution?” she said.

She singled out her plan to connect with development leaders in multilateral institutions as a crucial next step. “I will turn to Achim Steiner at the [United Nations Development Programme] Kristalina Georgieva at the World Bank, people who are working for the same outcomes as we provide resources to, we need to find a way to collaborate in such a way that we don’t duplicate,” she said.

Petri Gornitzka added that the new mandate should “glue an ecosystem between some of the instrumental players.”

Watch out for further Devex coverage of the DAC high-level meeting and the UK’s proposals on aid spending for overseas territories.

Update, Nov. 2: This story was amended to clarify that Germany, France, and Japan prevented consensus on rules around the use of PSIs

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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.