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Should the definition of aid be changed (again)?

Written by Alex Thier

Should a profit-yielding loan to a poor country be considered aid? Or, the salary of a British soldier preventing atrocities in South Sudan? For over 40 years, donor countries have wrangled over the definition of Official Development Assistance (ODA) and, despite recent changes to the rules, questions remain about what can and should be counted.

These debates matter. The complex set of rules managed by the Organisation of Economic Cooperation and Development (OECD) in Paris has real impact on spending on the ground. The OECD makes donors live up to their commitments to fight poverty with an annual proclamation stating which donors have spent how much.

In their recent General Election manifesto, the Conservative Party made a specific pledge to ‘work with like-minded countries to change the rules so that they are updated and better reflect the breadth of our assistance around the world’ and the UK government is looking for ways to push – if not stretch – what counts. But changing the rules is contentious, and any proposal must contend with potential unintended consequences.

The motivation

In 2013, the UK considerably raised the stakes for itself by reaching the target to spend 0.7% of national income on aid, and it raised the stakes again in 2015 when it enshrined that commitment in law. This puts the UK high on the leader board in terms of both the amount and percentage of spending. This was a terrific sign of commitment and ambition at the moment the world was defining a new sustainable development agenda and climate agreement. However, during challenging economic times, this decision was not universally supported in the UK, to put it mildly, with some press outlets exerting considerable political pressure.

All this has combined to mean that the definition of ODA is exceedingly important at the moment to the UK Exchequer, Parliament and, ultimately, taxpayers. So it’s no surprise that successive British governments have pushed strongly for rule changes that improve and, in some cases, expand the definition of ODA. This has become even more pertinent as UK aid is increasingly being spent by departments other than the Department for International Development (DFID).

Change is hard – but can be worth it

I participated in one such OECD process in 2015, led by the inimitable Mark Lowcock, former Permanent Secretary at DFID. This changed the definition of ODA for the first time in decades, limiting loans that didn’t look much like charity. The outcome was the right one for fighting poverty, but the process was a long, hard slog through reams of statistics, case studies, arcane (to me) lending practices, and deep down, national interests. In subsequent years, the rules on peace and security spending, including anti-radicalisation efforts, have also been updated. Securing these changes is far from easy or straightforward, with donors each bringing to the negotiating table priorities that are rooted in their own domestic contexts.

So, as the UK seeks to embark on a new round of negotiations, it is critical that it considers if, how, and why they will be worth it.

If official resources are going to clear development purposes but not being counted then updating the rules is a valid exercise. Fundamentally, we want rules that reflect and enable the purpose of ODA – the reduction of poverty around the world – and should shy away from modernisation just because it is hard.

The trouble is that other countries – especially those with more refugees or lower spending than the UK – would also like to appear more generous while spending less. If you open the can of worms, you may need to be prepared to eat some. 

Analysis not abstraction 

The Sustainable Development Goals, the Paris Accord, and shifting geopolitical landscape mean three themes should be prominent in this discussion:

  • peace and security

  • harnessing private sector finance; and

  • dealing with climate change.

The UK and several other OECD Development Assistance Committee (DAC) nations have an interest in mobilising resources to support these critical goals. Furthermore, there is an intrinsic relationship between security, rule of law assistance, development and climate.

To move forward, analysis not abstraction is needed. For example, what would be the impact of increasing the percentage of peacekeeping costs that are reportable? Would it increase much-needed transparency in peacekeeping spending and budgets? Would total ODA spending go up?

Governments should look at the financing of current priorities and see where they think there is a shortfall, assess what is needed to correct that shortfall and decide whether the DAC rules need adjustment on that basis. Will a change in the rules really unlock an appropriate solution?

I propose that the UK and others apply the 'Three I’s' test.

The 'Three I’s' test

  • Idea: what do you want to do that the ODA rules don’t currently allow? Is there something that you are doing that isn’t counted but should be, or something that isn’t being done but that that would be very valuable, so the rule should encourage?

  • Implementation: how will the proposed changes alter the way donors mobilise resources? A rule change should be to support a priority and therefore result in additional or better investment.

  • Impact: on the ground, where it matters, what will be the impact of the changes? Is this just an argument about accounting practices, or will the change positively affect the lives of the poorest and most vulnerable?

The real key here is to start with the outcome the whole system is trying to achieve – an end to extreme poverty and inclusive, sustainable economies for all. If you identify the desired impact and the missing tools required to achieve it, you can then set about changing the rules to build those tools. But an exercise that begins with a desire simply to count more or spend less will probably fail, and could erode trust in a system that has contributed to astonishing rises in human welfare over the past decades.