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February 2024 Newsletter


February 2024 ODAReform.org Newsletter


Dear Friends,


If it is not too late, I would like to wish you all a very Happy New Year.

 

As some of you know, my own involvement in the campaign to clean up ODA accounting has been extremely limited over the past few months while I was working on an interim but full-time basis with a charity. Nevertheless, we have not been idle.

 

Recent Developments

 

Since the June 2023 Newsletter, my main collaborators on this site, Hedwig Riegler and Simon Scott, have contributed four more papers explaining how the OECD’s Development Assistance Committee (DAC) is rewriting ODA rules to flatter their aid performances:

 

Write your own ODA receipt shows the arbitrary nature of the DAC’s overscoring scheme

Caps are for dunces points out where the DAC stops measuring and just decrees a number

PSI vehicles as ODA generators explains how DAC members will score ODA over and over again by recycling profits on their “private sector instruments”

Guarantees as ODA shows how the DAC’s new scheme to score ODA for selling guarantees is logically and mathematically wrong.

 

Regrettably, despite our and others’ extensive efforts to persuade the DAC to restore integrity to ODA as a measure of donor effort, its members have continued to move in the opposite direction. Indeed, in November 2023, the DAC finally published the details of its new rules on PSI which ignored all the criticisms in the above papers as well as numerous warnings from CSOs and other experienced observers.

 

Despite this, we now see several hopeful signs that the tide may be starting to turn against the DAC’s seemingly endless inflation of ODA scoring.

 

For one thing, the DAC retreated, in its new rules, from its earlier plan to score ODA merely for buying interest-bearing bonds. As we had pointed out in May last year, this would have represented a new low in abuse of the ODA concept. Buying a bond is the epitome of a “market terms” transaction and should never qualify as ODA.

 

Moreover, there have also been several positive developments outside the DAC, as detailed below.

 

CONCORD AidWatch Report 2023


We were pleased to read the long-awaited 2023 AidWatch Report by CONCORD, entitled “Bursting the ODA Inflation Bubble”, which was published towards the end of 2023.

 

For those unfamiliar with the organisation, CONCORD is the European Confederation of NGOs working on sustainable development and international cooperation and comprises 58 member organisations representing more than 2600 NGOs. CONCORD is described as “the main interlocutor with the EU institutions on sustainable development policy and international cooperation.”

 

The AidWatch Report validates many of the views and arguments expounded in our own website. In particular, it finds that a “significant component of aid inflation was the overcounting of ODA loans, which artificially raised EU ODA levels by EUR 1.7 billion”. It also noted that “debt relief and…private sector instrument (PSI) reporting” would “further inflate ODA”.

 

Stating that “the methodology builds on the work of Steve Cutts”, the Report finds that:

 

“current OECD rules do not…provide a good estimate of donor efforts because grant equivalents are not sensitive to real world interest rates and…the risk premium is not based on the specific conditions in [the] borrower [country] as a single rate is applied to all countries of the same income group.”

 

A footnote makes clear that this means that the “grant equivalent” methodology “counts loans that are not concessional in the sense that their terms…are similar [to] or even above market terms, as ODA”.

 

And the text goes on to record CONCORD’s concerns about the growing volume of ODA provided through loans, noting correctly that the new rules disincentivise grant-giving.

 

On debt relief, the AidWatch Report also validates the points that this website has been making repeatedly:


“When calculating the grant equivalent of ODA loans, a risk premium already takes into consideration the risk of default. Since the risk of default is already factored into the grant equivalent figures, allowing donors to count ODA for debt relief results in double counting. As a result, debt relief should not be reportable as ODA under the grant equivalent approach and the AidWatch methodology excludes debt relief from reported ODA figures.”


We very much welcome these findings and their overall conclusion that:


“The concern about increases in aid inflation poses the question of what it really means to reach quantitative targets such as the 0.7% GNI/ODA, when almost 20% of that reported aid is not reaching those left furthest behind and, on many occasions, not even leaving donor countries.”

 

Unfortunately, the Report is rather weak when it comes to recommending remedial action. Just asking the DAC to review itself and its rules is unrealistic. There needs to be an independent body to do this and to divest the DAC of its role in determining the accounting methods for ODA.

 

The relative weakness of the Report’s recommendations for reform may be partly due to their being formulated before the DAC’s final decisions on ODA scoring of private sector instruments (PSI) were announced in November. As already mentioned, these flouted previous CSO warnings and made a mockery of statistical rigour, so it will be interesting to see whether CONCORD now revises its position to take a stronger line on the need for institutional reform of the way ODA rules are set.

 

Their Report did call for greater “transparency” in PSI scoring, which, though not sufficient, is certainly necessary. As an aside, I wrote to the DAC during its drawn-out, closed-door PSI discussions asking what had already been decided, and all I got was a non-responsive reply saying, in effect, that nothing would be revealed until every decision had been taken – which turned out to be about six months later. This is the sort of approach that makes it impossible for outsiders to have any meaningful input into DAC decisions.

 

Brussels Declaration on Measuring Official Development Assistance



Another positive development was the convening at the end of October of an international experts’ meeting on ODA issues in Brussels. Unfortunately, I was unable to attend but both Hedwig and Simon took an active part in the discussions, which were kindly hosted by the Belgian Foreign Ministry.

 

The nine experts who participated spent two days reviewing the DAC’s “mauling” of ODA, and interviewed several officials and NGO representatives who had closely observed the progress of the DAC’s discussions. At the end of their deliberations, the experts agreed on the Brussels Declaration on Measuring Official Development Assistance, a powerful statement of what has gone wrong and what needs to be done to fix it. We know that this Declaration has been read and its message understood in influential circles, as we received a number of positive messages of support from some very eminent experts in the field.

Development Initiatives Webinar


Yet another hopeful sign was a webinar by Development Initiatives, an important British CSO, on How the DAC rules are changing and why you should care, featuring presentations by its Senior Development Finance Policy Advisor, Euan Ritchie, and by Nerea Craviotto, then Senior Policy and Advocacy Officer on Aid Effectiveness at Eurodad. Nerea and Euan showed themselves to be very well informed about the problems the DAC has created, and Euan presented original research demonstrating the logical flaws in the DAC’s approaches, the lack of comparability between its various options for reporting, and the general tendency of the new rules to massively overscore donor effort.


The webinar was further evidence of a growing awareness of the serious implications of the DAC changes. It is not just that donors will be overscoring ODA and thus falsifying their performances against ODA targets. It also means real cuts in aid, as donors seize the opportunities the DAC has created to meet their targets with profit-making transactions instead of budget expenditure. That trend, in turn, will reduce trust in the whole aid enterprise, and damage relations between donor and recipient countries. Official financing for multilaterals and NGOs will also suffer, as will the public’s confidence in OECD and other official statistics.


These are political ramifications and the DAC is a political body. We believe that several DAC members are now waking up to the real consequences of what they were led to believe were mere technical adjustments that would bolster, rather than damage, their country’s image.


Development Today Exchange


At any rate, DAC principals seem to have abandoned any attempt to defend their ODA rule changes on statistical grounds. They certainly did not do so when they promoted these changes in a recent op-ed on Development Today. All they claimed – though without real evidence or argument – was that the new rules should stimulate private sector investment in development. Even after our own Simon Scott counter-claimed that their new rules “will not measure anything” but “just produce arbitrary numbers with a dollar sign in front of them”, they made no attempt to deny this. Perhaps they secretly agree with it, since they admitted that they “share the concern about blurring the ODA boundaries and inflating ODA figures” and even whispered that “the statistical perfection of the rules may be subject to debate”. Hmm – you can say that again!


Development Today have just now published my own take on the DAC’s ODA rule changes and their implications for aid programmes. In it, I show how incentivising low-cost and no-cost transactions means disincentivising the grant financing needed by the critical social sectors in the poorest and most vulnerable countries. I also emphasise a point I have been making for two years now about climate finance: that the DAC’s changes will force poor countries to pay the costs of a climate change that they haven’t created while donors claim credit for aid they haven’t given.


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All in all, we now have a clear sense that at least some DAC members are coming to realise that they have been “led up the garden path” on ODA rule changes which in reality will damage the aid cause. Still, there is a long way to go to restore ODA’s credibility. That is going to require a new body, with both developed and developing country representation, that operates according to established scientific principles of statistical measurement, and not according to political directives. At the moment it is still unclear where the impetus for such a move might come from. We will keep you posted.

Steve Cutts, 8 February 2024

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