OECD DAC issues new rules that count debt relief as ODA

WASHINGTON — After months of discussion, and years on the to-do list, the Organisation for Economic Co-operation and Development’s Development Assistance Committee has agreed on rules for how it will count debt relief as official development assistance.

The decision did not come easily or quickly, said OECD DAC Chair Susanna Moorehead. The issue of how to count debt relief as ODA has been on DAC’s agenda since 2014. But discussions did not begin on it until late last year, with COVID-19 accelerating the need for a determination, she said.

“I know some people said we’ve rushed this, [but] 2014 to 2020 doesn’t seem like breakneck speed for me,” Moorehead told Devex. Civil society organizations had issued a call in July for DAC to delay making a decision, saying that most members had little time to “consider the implications of the changes proposed to these important rules,” and encouraged the committee to include civil society organizations and other experts in the discussions.

Underpinning the discussions was a long-running debate about whether loans should be counted as ODA and about which was a better form of development assistance, Moorehead said. Once members focused not on that broader debate but on the specific issue, conversations progressed.

“This is not about ‘Is a grant or a loan better?’” Moorehead said, adding that once the committee had agreed on the context of the decision, the discussion could proceed. “It’s important to remember that a lot of partner countries are asking for loans. It’s not that one is good and another bad; it is about a loan’s terms.”

Still, as debates continued across several meetings, there were two distinct camps: those that did not believe debt relief should be counted as ODA and those that felt it must be.

The deal they ultimately reached will count concessional debt relief of loans as ODA, though the amount counted will vary and depend on the type of debt relief, be it cancellation or modifications. But there is a ceiling on how much of a loan can count for ODA, and it will never count for more than a grant, Moorehead said. For both parties, this deal required a “huge concession,” she said.

The exact way that the calculations will be made and how they will determine the ODA value of debt relief is detailed in a 26-page technical document, which includes several examples, that was released with the announcement.

“I want to emphasize the fact this is not rushed, but I think it would have been irresponsible not to reach a compromise decision given how much need there is on debt relief,” Moorehead said. “This means that you're not disincentivizing debt relief,” she said, adding that were it not counted as ODA, countries with scarce resources might lend more instead of providing debt relief.

Civil society groups do not necessarily agree. While DAC has said that debt relief needs to be incentivized, the European Network on Debt and Development would counter that argument by saying debt relief is the result of economic necessity, with countries unable to repay, so incentives should not be necessary, said Jan Van de Poel, policy and advocacy manager at Eurodad.

“A handful of countries that spend most ODA as loans get off pretty well from this agreement. As expected and feared, additional ODA will be recorded for debt relief, even though it will inevitably result in double counting,” he told Devex.

DAC currently uses a system of awarding a certain grant equivalent value to loans based on their terms and the risk involved. Civil society has long said this system incentivizes loans instead of grants, Van de Poel said, adding that because those calculations factor in risk, counting debt relief as ODA does result in double counting.

“It’s what we expected, but we regret they made an agreement that would allow for double counting,” he said. “Our main concern is that some countries reach or get close to the 0.7 target” — spending 0.7% of gross national income on ODA — “by inflating aid figures, not by mobilizing more funding. That’s what this target needs to do, what ODA is about.”

While there is now a detailed explanation about how to count debt relief as ODA, there is a lack of information about “the impact or expectations of impact,” Van de Poel said.

OECD does not yet know the scale of the impact of this decision, in part because the amount of debt relief that debtor nations will request is unknown, Moorehead said. At the end of 2017, there was about $215 billion worth of ODA loans, but not all of them will be subject to debt relief or eligible, she said.

As part of the agreement, OECD will track the new rules, and when enough debt relief deals have been made, it will conduct a review of the policy, Moorehead said.