[ Development assistance ]

Progress in donor harmonisation

The OECD Development Assistance Committee (DAC) estimates that after rising in 2004/2005, international official development assistance (ODA) fell again last year and will decline further this year. This has emerged from the recent DAC report on development cooperation, which the committee presented at the end of February. The ODA figures for 2006 are expected to be published at the beginning of April.

The strong growth in 2005 to the record high of $107 billion was attributed for the most part to debt relief for Iraq and Nigeria. As there has been no more large-scale debt relief on the agenda since then, official aid will reduce accordingly. The DAC is optimistic, however, that aid flows will increase again from 2008 because then the budget targets that many donor countries have set for the year 2010 will be approaching. In order to achieve these targets, the donors that are members of the DAC will have to jointly increase their development assistance from 2008 to 2010 by 11% per annum. In his introduction to the report, DAC Chair Richard Manning says the upcoming replenishment of the World Bank’s subsidiary International Development Agency, which has been negotiated since March, will be a good test to see how seriously the donors take their promises.

The report also responds to the criticism expressed by non-governmental organisations about debt relief being taken into account as ODA. So far, all debt relief declared by the so-called Paris Club of lending countries are reportable in full as development assistance – regardless of whether it was a public or private loan. According to the report, the costs of debt relief for the public sector, however, are often significantly less than the nominal amounts that are cancelled. The difference arises, for example, through private creditors’ own contribution to carry losses from bounced loans. Public credit-insurers deduct these “own risk” losses from the compensation for private creditors. In the event the debt is subsequently officially forgiven, however, the lending country may credit the entire amount as development assistance. The report notes that it may be more appropriate to report the donor’s actual effort as ODA and not the nominal book values, but emphasises that this new approach would have to be decided by a consensus of the DAC because otherwise it would no longer be possible to compare the data from individual countries.
Furthermore, the DAC report has put together the results of a study to see to what extent donors and recipient countries have implemented the Paris Declaration on Aid Effectiveness to date. According to the report, many of the 31 recipient countries that were surveyed do in fact have development strategies in place, to which the donors can align themselves. Yet frequently these strategies are lacking clear, practically-oriented priorities. In addition, public-finance management in the majority of the recipient countries is rather weak – a hindrance for the donors that want to place the management of development aid into the hands of local governments. At the same time, however, many donors don’t make use of local government agencies even if they are comparatively competent. The report ascertains that there is only a very weak correlation between the quality of local systems and the donors’ willingness to use them.
In 2006, the year of the survey, donors disbursed just under two thirds of pledged aid in the respective recipient’s budget year as announced; over two thirds was paid late. According to the Paris Declaration, this ratio is to be halved by 2010. The evaluation identifies progress in donor harmonisation: donors transferred 42% of the aid granted in 2006 as direct budget support (19%) or in the form of other multi-donor programmes (23%) – with a clear upwards trend. There is also a clear trend towards preparing joint country analyses. But much remains to be done with respect to joint missions: the 31 countries surveyed had to receive a total of 10,831 donor missions in the past year; not even a third of these were implemented jointly by two or more donors. (ell)

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