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Prospects for aid in 2023: a watershed moment or business as usual?

Expert comment

Written by Annalisa Prizzon, Bianca Getzel

Image credit:CC BY-NC-SA 2.0

ODA passed the $200 billion mark in 2022 for the first time …

Let’s start with the good news. Annual official development assistance (ODA) passed a symbolic threshold of $200 billion and kept rising in 2022, by 13.6%, even taking inflation out of the equation. Annual growth in 2022 was among the highest ever recorded, second only to 2005, when exceptional debt relief packages were agreed at the G7 Summit in Gleneagles. Nearly all bilateral donor members of the Development Assistance Committee (DAC), 26 out of 30 recorded more ODA flows in 2022 than 2021. These trends are even more surprising given predictions that ODA flows would shrink in the aftermath of severe and systemic crises, such as the 2008–2009 Global Financial Crisis and the Covid-19 pandemic.

On the multilateral front, both the African Development Fund (AfDF) and the Global Fund to Fight AIDS, Tuberculosis and Malaria (GFATM) enjoyed record replenishment rounds in 2022.

… but ODA to the core development agenda for lower-income countries is falling

The good news, however, stops here. The rise in ODA in 2021 was driven by vaccine purchases, and in 2022 the war in Ukraine triggered growing financial and humanitarian aid to the country. The Kiel Institute for the World Economy estimated a total of €78.0 billion (equivalent to $82.1 billion) committed financial and humanitarian aid to Ukraine in 2022, albeit not all of this can be classified as ODA.

Spending to support refugees in donor countries is also rising. This isn’t altogether surprising. We outlined this likely trend for 2022 last year as ODA resources were already being reallocated away from some sectors to support in-country refugee costs, as in Sweden, Denmark and the UK.

If refugee costs in donor countries are excluded, ODA would fall across many more DAC members, 12 instead of four. Under these assumptions, across DAC members the increase in ODA in 2022 would be much smaller, 4.6%. If ODA flows to Ukraine are also discounted, in 2022 ODA to other causes and countries actually fell by 4.0% compared to 2021, totalling around $160 billion, much the same as 2020 (slide 2).

Against this backdrop, it is not unexpected that other regions and income groups were worse off. ODA to sub-Saharan African countries fell by 7.8% in real terms. This is probably the statistic of greatest concern, not least as trust especially between African leaders and their Western counterparts has significantly eroded in recent years. Furthermore, while ODA rose across all income groups, the pace was much slower for low-income countries (LICs). This signals that the proportion of ODA to LICs has fallen against other income groups.

Lastly, while contributions to the core budgets of international organisations were stable in 2022, their share of total ODA fell to a quarter from 30% in previous years. Figures for 2022 are preliminary and we don’t have enough detail to comment about the other ways DAC members are working with international organisations, i.e. voluntary/non-core contributions. But from the data we have, the stronger bilateral component of ODA is of concern and is again largely driven by rising in-donor refugee costs.

Prospects for aid in 2023: a wish list

  • More in-country spending to help rescue the SDGs. DAC members have collectively responded to crises: the rise in ODA in recent years to help mitigate the consequences of the Covid-19 pandemic and the war in Ukraine are testament to that. But this has come at the expense of efforts on the existing development agenda. We are now midway through the Sustainable Development Goals. The UN Secretary General has issued a global call to rescue the SDGs. Country programmable aid (CPA) – the core component of ODA spent in country – fell marginally from $64.1 billion in 2020 to $61.4 billion in 2021 in real terms despite total ODA going up. A further decline in CPA in 2022 is almost inevitable. It really is time to turn the tide and spend more in beneficiary rather than donor countries.

  • Increased debt relief. ODA preliminary data does not offer any guide as to allocation across objectives and sectors. But we already know that spending on debt relief in 2022 was minimal. As debt distress mounts in many countries, bilateral and multilateral development partners should prepare for a new wave of debt relief packages. The IMF is already calling for ‘another Gleneagles-like moment’.

  • Align finance more closely with climate goals. With pressure growing to meet the $100 billion international climate finance commitments, donor countries will have greater incentives to fund projects that also contribute to ODA (large-scale climate finance projects are typically in the energy, transport, water and sanitation, and agriculture sectors). Indeed, an ODI emerging analysis found that most of the rise in climate finance had been the results of ‘rebranding’ of resources rather than additional finance.

  • A stronger donor commitment to MDB reform. To tackle global challenges – climate change, pandemic preparedness, peace and security – MDBs need to restructure the way they operate. But they will also require additional financial support from their shareholders, largely from their ODA budgets. Negotiations for the next replenishment of IDA will start at the end of the year. This is an opportunity to target concessional finance to low-income countries.

The transformative impact of development projects and programmes for countries and communities is far more important than classifying, measuring and analysing trends in ODA. But ODA still represents more than 60% of external finance in least developed countries. Given that it is also such a scarce concessional resource, it should be prioritised in countries with limited access to alternative financing options. ODA is also a fundamental tool to help rebuild trust between African leaders and DAC members.