Ana Henche Cuesta
Head of the Statistics Service - Sub-Directorate General of Development Policies - State Secretary for International Cooperation and for Ibero-America
The context of development finance has changed a great deal in recent years, since the international community agreed the Millennium Development Goals (MDGs). Official Development Assistance (ODA) remains an essential resource for development, yet many countries have access to a more diverse range of financial, domestic, international and public and private resources.
Within this context and inside the framework of negotiations for a new 2030 Agenda, the United Nations submitted a formal request to DAC to identify and improve the transparency of all flows deployed in the interests of sustainable development (Total Official Support for Development, TOSSD) that reach member countries in order allow the establishment of a suitable strategy tailored to different scenarios occurring in different countries and to fulfil development objectives considered in the new Agenda. DAC, for its part, agreed to carry out a process to revise its ODA and adapt it to the new context in an attempt improve incentives concerning its allocation.
A process to revise ODA is being carried out in two stages, with some urgent adaptations being made previously in 2014. In the DAC High Level meeting held in December 2014, an agreement was finally reached to remodel the concessionality of ODA sovereign loans. With this reform, it has moved from a definition of uniform concessionality for all recipient countries to applying criteria to differentiate between member countries in order to take into consideration their respective situations, and to record ODA in net terms to make it the basis of an “equivalent donation element” (resulting from multiplying the nominal value of the loan by its percentage of concessionality). This, therefore, allows appropriate incentives to be generated in the Cooperation system with regard to the quality of assistance and its allocation. Furthermore, to produce loans like ODA, they must be coherent with the FMI’s debt ceiling policy and the World Bank’s non-concessional debt policy. Finally, the maximum types of interest allowed in ODA loans have been reduced for all country categories and have been almost halved for Least Developed Countries (LDCs) and other Low-income Countries (LICs).
These changes will begin to come into effect for flows in 2015, although they will operate with prior systems and definitions until 2018, when they will become a reporting standard.
From this point on, and once the new 2030 Agenda is agreed upon, other issues awaiting reform are being worked upon. Debates are taking place on how to treat expenditure generated in the donating country and not transferred to the member country as a flow. These forms of expenditure have always come under scrutiny within DAC and are primarily: administrative costs, grant costs, support for refugees, education for development, etc. Currently, the report guidelines of these expenses are being clarified to improve legitimacy, transparency and comparability in the report. It still remains to be seen whether it brings about some form of modification in guidelines beyond this clarification.
Other outstanding issues are related to the definition of boundaries between ODA and TOSSD for peace and security costs. To address this chapter, a working party of experts, INCAF – WP Stat (the DAC’s Conflict and Fragility Group and its Statistics Group), was created. At the current time, this group has identified aspects related to expenditure on Peace and Security that DAC Member States have submitted for revision, initially to clarify the DAC guidelines should there be a need to review the eligibility of certain costs as ODA. The main goal of this group of experts has been to clarify guidelines and not to expand them to include more ODA activities.
Furthermore, inside this reform, the United Nations Department of Field Support (DFS) and Department of Peacekeeping Operations (DPKO) are reviewing the contribution of development in their peace missions — currently, 7% of expenditure for some of these missions is calculated as ODA (not all United Nations Peace Operations are calculated in ODA). This percentage is identical for all eligible missions as ODA and is calculated on the basis of an analysis of the activities of five major UN Peacekeeping Missions. There is currently a review of this methodology so that not all missions eligible as ODA have the same percentage, setting it instead by other criteria such as the mission’s mandate and the activity it includes.
A debate is also being developed on how to account for ODA in Support Instruments for the Private Sector used by the donor. In DAC’s High Level meeting in December 2014, DAC and its Statistics Group was mandated with the task of researching two possible forms of accounting these instruments: an instrument-based approach or institutional approach.
Accounting by instruments means generating ODA in a similar fashion as before, with each development intervention being itemised with an accounts entry in the statistical report. The institutional approach means the budgetary transfer the donor makes to the Development Finance Institution in their own country, and which later carries out operations with the private sector in developing countries, is accounted as ODA. This institutional approach considers including safeguards to ensure that ODA is only calculated as activities which have a development mandate via the inclusion of pro-rata coefficients which exclude all those activities where development is not the main goal from ODA. Pro-rata coefficients are also considered to account for the activities of these institutions in ODA recipient countries.
Moreover, it is important to highlight that while the remodelling of ODA and the creation of a new statistical framework within DAC has been one of the inputs from the Addis Abeba financing summit, the 2030 Agenda and Addis agreements must also be fully involved in the work DAC develops concerning development finance. The developments in DAC must be aligned with the Addis Abeba agreements.
In the final Addis Abeba document, multiple commitments are included that must guide the work of development finance institutions and development banks in their work with the public and private sector. In the document there are constant mentions of transparency, accountability, meeting international social and environmental standards and alignment with the member countries’ national policies and priorities. There are demands to development banks and finance institutions for more information on the fulfilment of these aspects. Backed by this Addis Abeba Action Agenda, Spain and other donors in DAC want more information than donors currently report to DAC regarding their operations with the private sector, outside the ODA reporting approach that is ultimately adopted. The DAC Secretariat is in favour of carrying out this exercise. Furthermore, there are still certain issues to be resolved, for instance a review of how to calculate debt relief operations set to be addressed in 2016.
At any rate, Spain’s position within DAC will be to advocate an increase in transparency with respect to the assistance operations of the private sector, particularly those calculated as ODA.