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The end of ODA: death and rebirth of a global public policy

Date
Time (GMT +00) 16:45 18:00
Hero image description: Boy on doorstep Sri Lanka Image credit:springm Image license:Creative Commons

Speaker:

Jean-Michel Severino - CEO, French Development Agency (AFD)

Discussant:

Andrew Steer - Director General for Policy and Research, Department for International Development

Chair:

Alison Evans - Director, ODI

Jean-Michel Severino’s motivation for writing this paper stemmed from the emerging problems in the existing public policy framed towards achieving three main developmental goals i.e. (i) Accelerating Growth; (ii) Providing for basic human welfare; and (iii) Fighting against global public evils.

The emerging problems within the international public policy are a result of the structural changes that have taken place over the past few decades relating to the very nature of diversity of instruments, goals and actors. Therefore, the paper explores ground for better international solidarity and ways for improving effectiveness and transparency of the public policy.

Olivier Ray started the presentation by tracing the evolution of international assistance over the past two decades from the geopolitics of cold war period to the emerging challenges of the present decade. In this context he highlights the mandate set in the paper for global market of global public policy:

  • Need to create effective collective action between small numbers of coherent actors to hyper-collective action between NGOs, emerging donors, and proliferation of humanitarian trust funds that are financed by the same countries but appear as new actors in the field of aid.
  • The need to move from discreet to continuous financing, e.g. from project support to continuous budget effort in the long run, particularly for fighting global evils like climate change.
  • Need for financial instruments to scale up the efforts because the new challenges today require additional funding which may not all come from state budgets. With greater involvement of private sector and the need to plug in some of the gaps we see in financial markets have lead to the emergence of new breed of financial instruments for development.
  • There is a need for systematic effects. Some of the ills that exist are structural that are best treated by systematic leverages rather than just going out in field and dealing on a country by country basis.

He concluded by saying that the emergence of new actors has diluted the monopoly of traditional actors and the barrier between private and public solidarity is fading implying that public sector is actually financing private actors, NGOs etc to deliver part of its policy. Therefore, with the change of actors, mandates and tools in the international policy arena, there is a need to change the benchmarks that measure the policy and thus we return to ODA.

Jean-Michel Severino then continued with the presentation by highlighting the three fatal sins of ODA:

  • ODA measures too much. There are a number of items accounted in the ODA measurement that are irrelevant to the policy. For e.g. cost of hosting political refugees, cost of foreign students studying in host countries who may settle down in OECD countries which would not contribute to capacity building of the developing country that they belong to. Though the volumes captured by these categories are minor but none the less are important.
  • ODA measures too little. Most of the innovative instruments that have been deployed over the past two decades are not captured within the policy. This is a problem because they have budgetary costs, probably hidden due to indirect support. This argument is based on the assumption that in the coming future there will be two major ways of funding international solidarity. One, through international taxations, which many governments declare will not be a part of ODA and two, through tax breaks as most of the money that is pushed by private foundations and NGOs is based on huge tax breaks.
  • ODA measures the wrong things. ODA is only about inputs and does not describe the outcomes or impact these inputs have on developing economies. For e.g. over the life of concessional loan, its ODA contribution is zero by construction of the indexes. Yet it entails budgetary cost by lowering the interest rate of the loan by vast proportions, but the cost of this reduction is not declared at any stage in index preparation.

In view of the above points, Jean-Michel emphasised that there is a lot of room for cheating in declaration of ODA and that this statistic doesn’t explain what is really behind the number. So, he suggested that it is essential to rename the policy as ODA is often merged with the concept of poverty alleviation and there are goals in today’s world for instance environmental goals that have little impact on poverty. Also some of the goals for instance those of health policy may diverge from partner country’s priority.

He further continued to address the possible political questions that would emerge from the re-structuring of the policy. The first of these is the question of moving away from the 0.7% ODA goal. According to Jean-Michel, instead of moving away from the 0.7% benchmark, we should adapt it according to the new policy i.e. we modify it to 0.7% of GDP in terms of budgetary costs from the current 0.7% measure.

Secondly, on what becomes of OECD-DAC, who have dedicated their entire lives to measuring ODA, he commented that their existence is important for discussing and acting on the policies.

He concluded by re-emphasizing the motive behind the paper which is to generate a debate around the existing public policy and build a consensus on the way this policy captures efforts and improve its accountability to general public.

Andrew Steer, Director General for Policy and Research, Department for International Development was then invited by Alison to share his views on Jean-Michel’s presentation.

He begins with picking up the first sentence from Jean-Michel’s new paper, “ODA is dying...Our current understanding of ODA is becoming increasingly irrelevant...the measurement of ODA is senseless...”, which is intriguing and leaves great scope for comments.

He then stated 5 points  his reasons for liking the paper:

  • Development finance has changed in exactly the three ways highlighted by the paper i.e. objectives have expanded to include public goods, sources of funding have multiplied and instrument of finance have become richer.
  • We need to move on from the present concept of assistance as our partner countries have transformed over the decades. Therefore, we need to think of new ways of moving forward.
  • Definition of ODA needs some tidying up, for e.g. in case of concessional loans, only the grant element should be included in ODA otherwise most of the mortgages available in the market would qualify as ODA.
  • A better measurement for capturing flows from Non-DAC donors; private foundations etc. should be incorporated.
  • There is a need to linking money to results.

He then briefly explored the three main changes proposed by the paper i.e. (i) we should expand ODA, (ii) We should shrink ODA and (iii) we should create a new indicator, to see whether they hold ground in reality.

Firstly, he highlights the three conceptual distinctions for providing assistance as outlined by the paper. Though he acknowledges that when it comes to global public goods like carbon financing, it has to be ring-fenced to ODA and maybe ODA benchmark has to increase to 1% for meeting this objective. However, he disagreed with the distinction between growth and transformation, and human welfare. In his view this distinction is not practical as transformation cannot be reached without human welfare.

Secondly, he argues that though there are new players it does not mean that we should stop measuring what government gives, which is what ODA is all about.

Thirdly, he argues that even though the barrier between public and private funding is fading, we should not change the way of measuring public funding. Whether money is put through public or private partnerships should be judged by its developmental impact.

Finally, on the distinction between old school aid and new school aid in the paper, he comments that (i) the definitions of old school aid which focuses on projects and that of new school aid that focuses on programs bear no implication to the definition of ODA, and (ii) according to the paper government to government aid leads to double monopoly and is old school aid, but in fact this is a feature of new school aid and has been promulgated by ‘Paris’ and ‘Accra’ agendas and again has no implication on the definition of ODA.

Before concluding, he pointed to the fact that scholarships and first year of refugee costs are not included in DFID’s ODA assessment for the reasons mentioned in the paper. Though the proposed concept of new global policy is interesting but Andrew points that flows should not be added if there is strong substitutability amongst them.

Finally, he concludes by saying that broad direction of the paper is right and that ODA definition should be changed overtime but at this present moment it should not be meddled with.

Discussion:
Alison thanked Andrew for his comments and took the following questions/comments from floor:

Measures like 0.7% of national income as ODA keep ODA alive and kicking and also exhibit our commitment towards development.
What global public policy is? Who determines that and what do you do about the tension between development on one hand and country driven model that we follow and global policy on the other?

Incentives for changing definitions now?

As governments decide what they chose to report and what not but isn’t the point of global measure like 0.7% to encourage common global responsibility for everyone to be responsible for the same thing.

What about the assistance who’s objective is not development like military assistance but results in an indirect contribution to development?
These questions were jointly addressed by Jean-Michel and Andrew. Jean-Michel started by acknowledging some of the criticism that came from Andrew and from the floor and that before changing to a new policy all the pros and cons have to be carefully evaluated, which will take some time. He also acknowledged that there may have been some over statements in the paper but the message was not that ODA performance is low due to faults in statistical system.

He further stated that many countries do cheat with their declaration and often declare items that are not meant to be declared. Also, the discrepancy in ODA measurement amongst the countries leads to confusion as ODA of two countries cannot be compared. This leads to vagueness and opaqueness in the 0.7% goal and hence, undermines the credibility of the policies.

In addressing the questions, Andrew began with claiming that he is proud of the 0.7% goal that UK adheres to and it reflects UK’s commitment towards development and makes aid more predictable. He further explains that there is a centrifugal force represented by diverse actors, instruments etc. but there is also a centripetal force that brings everything back together. This is essentially what Paris and Accra are saying that everything has to be bought together at the country level with greater ownership. This is reflected in vertical funds that are changing dramatically and are actually honouring country ownership.

Alison thanked the speakers and the audience for their contribution to the discussion and concluded the discussion by saying that ODA as a measurement is not dead but is in need of some sort of life support and discussion on future of development finance is in everyone’s interest.

Description

The world of international development assistance is undergoing three concomitant revolutions, which concur to the emergence of a truly global policy. First, it is living through a diversification of the goals it is asked to pursue: to its traditional objective of ushering convergence between less and more developed economies have progressively been adjoined those of financing access to essential services and protecting global public goods. Secondly, faced with this new array of challenges, the world of development aid has demonstrated an impressive capacity to increase the number and diversity of its players, generating a governance conundrum for this eminently fragmented global policy. Thirdly, the instruments used by this expanding array of actors to achieve a broader range of policy objectives have themselves mushroomed, in the wake of innovations in mainstream financial markets. Yet surprisingly, this triple revolution in goals, actors and tools has not yet impacted the way we measure both the financial volumes dedicated to this emerging global policy nor the concrete impacts it aims to achieve.

Jean-Michel Severino will present a new working paper at this event, arguing for the need to move from the conventional measure of Official Development Assistance to the construction of clearer benchmarks for what ultimately matters: resources and results that concur to 21st century international development.