OECD-DAC donors mulling more aid to LICs

As high-level aid officials gather this week in Paris for OECD Development Week, one of the hot topics on the agenda is whether donors — many of which are still struggling to meet their pledges to spend 0.7 percent of gross national income on official development assistance — may soon face additional targets to encourage directing more ODA to low-income countries, financing for global public goods, and other goals. The discussion is taking place within the Organization for Economic Cooperation and Development’s Development Assistance Committee, the main body responsible for defining and measuring aid, which is seeking a consensus by the end of the year on modernizing the current definition of ODA. According to Erik Solheim, chair of DAC, the specifics of any new targets — or a combination thereof — are still far from any agreement, and an “overall reluctance” to add more goals to the 0.7 percent benchmark persists. The 29 DAC donors do agree, however, that aid should go to those who need it most — and this, said Solheim, could result in commitments to devote at least half of ODA to LICs. A useful lever If such targets are set — and met — the implications could be significant. In 2012, OECD data shows that DAC member countries together provided 40 percent of their bilateral and multilateral ODA to LICs; to spend 50 percent would have meant shifting an additional $12.7 billion from non-LICs to LICs. Any new target, though, would be voluntary, and for some donors would not change much. The United Kingdom, for example, has already committed to spend 30 percent of its aid in fragile and conflict-affected states. But even if the balance would not shift overnight, such a target would still be “a useful lever,” Amy Dodd, coordinator of the U.K. Aid Network, told Devex. While campaigners have criticized in the past the failure of most donor countries to reach the 0.7 percent target, many agree the goal has at least pushed them in the right direction. And there are precedents: earlier this year, the U.K. announced it had achieved that goal, boosting spending to 11.44 billion pounds ($18.93 billion) in 2013. Also, in 2005, the G-8 famously pledged to double aid to Africa — and kept its promise. For Dodd, though, any increase will only be as good as “the quality” of that aid. “If it’s mostly loans, we’re just creating the next debt crisis,” she said. An endangered species LICs themselves also want to see any post-2015 goals include a specific target so donors will commit to spending half their aid there. However, Dodd pointed out, a “more achievable” figure would probably be 40 percent — not least because donors are wary of pulling back on aid to middle-income countries, where over 70 percent of the world’s poor now live. Dealing with the broad category of MICs — defined by the World Bank as those with a GNI per capita of between $1,035 and $12,616 — remains contentious. David Roodman, a consultant formerly based at the Center for Global Development, said the division between LICs and MICs “feels a bit artificial”, with least-developed or low-income countries “an endangered species” whichever way they are defined. Fixing the share of aid per category may also be problematic for donors wanting to direct resources to where they can have most impact — that may be better done on a case by case basis. In some contexts, aid can be more effective in a more stable MIC than in a fragile state, even if the latter is more in need, said Roodman, who gave Brazil as an example: “Maybe it is no longer as needy overall as, say, Honduras — but maybe aid will work better in Brazil.” On the other hand, noted Dodd, a small amount of aid can often make a bigger relative difference in the countries facing the biggest financing gaps. Judith Randel, from the research organization Development Initiatives, welcomed the drive to reach the poorest, but said that categorizing aid on a country level remains a “rather crude” approach. With increasing inequality within countries, she said, we should not rely on World Bank average GNI per capita data to inform such decisions. For example, India had an average per capita income of $1,570 in 2013 [$1,530 in 2012], but that masks huge variations in average incomes at the sub-national level. Randel explained that this makes better, more disaggregated data “fundamental for targeting aid at the poorest people.” New approaches This year’s DAC discussions precede U.N. meetings scheduled for 2015 that will look at development financing more broadly. And while DAC lacks the inclusiveness — and some would argue, the legitimacy — of the U.N. post-2015 process, DAC may be able to set the tone. A new target for spending on global public goods, for example, could consolidate a new approach to aid. That would not only help people think differently about relations between rich and poor nations, said Roodman — it’s less about “us” helping “them,” than about working together to solve problems. “A headline [target] that would break away from the traditional concept of foreign aid … could be very useful for educating politicians and the public,” he pointed out. For Solheim, the biggest potential impact of his organization’s current discussions will be finding “better ways to encourage private investment.” That, however, requires overcoming the biggest sticking point in measuring and defining aid: the question of loans. Indeed, according to Solheim, DAC members are still “far from agreement” on how to define what kind of loans can be classified as ODA. In the past, strong accusations — including from the former DAC chair — that donors are ”getting away with murder” by reporting profit-making loans as ODA have prevailed in this debate. Will OECD-DAC be able to reach a consensus on this matter by the end of the year? Do you agree these top donors should spend more aid on LICs than MICs? Please let us know by sending an email to news@devex.com or leaving a comment below. 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