The debate continues: Inflating aid vs. adapting to new realities

A report released by the European NGO Confederation for Relief and Development demonstrated that official ODA figures often include what it dubs “inflated aid.” Photo by: JT / CC BY-NC-ND

When Concord, the European NGO Confederation for Relief and Development, released its AidWatch 2014 report Thursday, the central message was that only four countries — the United Kingdom, Sweden, Denmark and Luxembourg — met the European Union’s pledged target of providing 0.7 percent of their gross national income on official development assistance.

The deadline for reaching that figure is next year, but the study by the Brussels-based group showed that some crisis-ridden EU members continue to cut aid budgets; Concord projects EU aid to the poorest countries will drop 41 billion euros ($50.8 billion) next year.

“Donors need to recommit,” said Amy Dodd, chairwoman of Concord AidWatch and coordinator of the U.K. Aid Network. “It is fundamentally a political problem. It is not that the United Kingdom or France doesn’t have the money. Not to downplay the challenge, but you have to build a political consensus and put pressure on the political parties.”

Further muddying the waters, the Concord report demonstrated that official ODA figures often include what it dubs “inflated aid” as they often include elements that “do not genuinely contribute to development.” These include debt relief, tied aid, spending on students and refugees in the donor country, and repayments of interest on concessional loans and future interest on canceled debt. Going by Concord’s definition of development assistance, France’s 0.41 percent ODA-to-GNI ratio, for example, would fall to just 0.32 percent.

There is also concern over the growing number of myriad policy goals that many countries seem to be embedding in their ODA activities. But Concord stressed in its report that one goal needs to be kept in place.

“We must assure that aid remains focused on the eradication of poverty,” Dodd said.

New way to measure aid or to inflate the numbers further?

All of these received due attention at a seminar to mark the release of the report at the Paris headquarters of the Organization for Economic Cooperation and Development. Interestingly, however, the event also served as a platform for the OECD’s Development Assistance Committee to outline a new concept for assessing rich country contributions to development in poor nations.

Provisionally called Total Official Support for Sustainable Development, the new measurement remains a work in progress but aims to capture a broader range of elements, including things such as concessional loans and private sector cash flows judged to have been leveraged by public commitments. According to Julia Benn, manager of the statistical policy, analysis and engagement unit of the OECD Development Cooperation Directorate, this new figure will include three main factors that are not included or underreported in current ODA figures: loans, in-country donor outlays and “marketlike” outlays. Expenditures on “peace and security” could also be included, according to some proposals.

The debate over what to include and how to measure development assistance is running parallel to the discussion of the post-2015 sustainable development goals. That helps explain why nobody wants to jump the gun on the creation of any new parameters.

“The statistics should serve the policy framework and not the other way around,” said Mathieu Remond, a representative of EuropeAid’s aid and development effectiveness and financing unit.

But some representatives of civil society organizations are concerned that TOSD might be an attempt to end-run ODA commitments or a simple public relations tool to make it seem as if rich countries were spending more on development than otherwise assumed.

“There is a danger of mixing [things] and thereby reducing accountability,” said Manuel F. Montes, senior adviser for finance and development at Geneva-based intergovernmental research and analysis organization South Center. And as Matt Kohonen, principal adviser of Christian Aid in the U.K. put it, “There is a danger that TOSD may replace ODA as the media takes up the stats.”

No hidden agenda, advocates claim

As expected, proponents are quick to justify their amended way to measure — and define — aid.

“Some people think there is a hidden agenda,” Remond noted. “But it is not a hidden agenda. It is an attempt to adapt to a new reality. Long-term financing and concessional loans are useful for development. They need to be ‘valued’ in the statistics.”

“Some elements are out of date with respect to how development cooperation is carried out,” OECD’s Benn added.

They are also quick to point out than any new figure will supplement, rather than replace, ODA figures.

One way to factor in loans will be through something called “risk-adjusted grant equivalent.” Using interest rates, maturities and risk data, it is possible to determine how close a loan comes to being the same as a grant (meaning in the extreme that the creditor expects little or no return).

“You could use grants as the gold standard and then eliminate the distortions,” Remond said. “Right now a 99 percent grant equivalent is treated the same as a 26 percent grant equivalent.”

Realpolitik, as Dodd said, is another real issue.

“Policymakers in donor agencies need to take everything into account,” Benn said. “If the statistics were closer to what parliamentarians use when they vote, there would be better accountability.” According to him, in practical terms, this means aligning grant equivalents with statistics used in developing aid policies.

In addition, Suzanne Steensen, manager of the development finance architecture unit of the OECD Development Coordination Directorate, said the fact there are now more diverse financing instruments and more new players than there were a decade ago should also be taken into account.

“Flows [other than ODA] have been increasingly rapidly,” she said. “We need to recognize that.”

One important goal she noted is to increase the transparency for these new elements. But, as Steensen also pointed out, “This is a work in progress.”

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About the author

  • Bill Hinchberger

    Bill Hinchberger is a global communications professional and educator. He studied at Berkeley and has taught at the Sorbonne. Based mostly in Paris, he spends quality time in Brazil and the United States, and works extensively in Africa and Latin America. He has served as an international correspondent for The Financial Times, Business Week, ARTnews, Variety, and others. One current focus of his work is content creation for foundations, NGOs and other organizations, especially those working on issues related to international affairs, the environment and development. He also runs training programs for professional journalists, notably in Africa, and is an associate of Rain Barrel Communications, a leading consultancy for social justice projects.

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