Efforts and Policies of Bilateral Donors
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ISBN 978-92-64-05504-9 OECD Journal on Development: Volume 10/1 Development Co-operation Report 2009 © OECD 2009 Chapter 6 Efforts and Policies of Bilateral Donors Aid continued to increase in 2007, once exceptional debt relief is excluded from the figures. But the increase was only 2% on 2006. This is much too slow if donors are to meet their commitments to increase aid by 2010. Poverty reduction continues to drive the donor community and donors include achieving the MDGs among their key objectives. Donors focus on creating an enabling environment, on building growth, governance and stability needed to achieve the MDGs, and many build their programmes around achieving specific targets. Donors are beginning to reform their systems to implement the aid effectiveness principles and to meet the targets set in the Accra Agenda for Action. They have developed action plans, set up monitoring measures, and pay increased attention to results. They emphasise partner country ownership, and are employing new ways of working: some are trying delegated co-operation, joint programs, and especially direct budget and sector budget support. Donors are meeting their obligations to support the implementation of the Rio Conventions through the Global Environment Facility and the convention secretariats as well as through bilateral environment programmes. While most donors have an environment policy, applied in principle to all their aid, some have also established funds to address climate change and deforestation. In 2008, the DAC conducted four peer reviews – Australia, France, Norway and Luxembourg – as well as a special review of the Republic of Korea. 101 EFFORTS AND POLICIES OF BILATERAL DONORS Introduction: DAC members’ aid performance in 2007 In 2007, total net official development assistance (ODA) from members of the Development Assistance Committee (DAC) was USD 103.5 billion. This represents a drop from 0.31% of their combined gross national income in 2006 to 0.28% in 2007, or a fall of 8.5% in real terms. ODA had been exceptionally high in 2005 (USD 107.1 billion) and 2006 (USD 104.4 billion), due to large Paris Club debt relief operations for Iraq and Nigeria. Debt relief diminished in 2007 to USD 9 billion as the Paris Club operations tapered off. Excluding debt relief grants, DAC members’ net ODA rose slightly by 2%. This is a truer reflection of the underlying trend in aid flows. Figure 6.1 shows the impact of debt relief on net ODA in 2005 and 2006. It also shows a small increase in humanitarian aid in 2005 as special assistance was provided in the wake of the Indian Ocean tsunami and earthquake in Pakistan. Bilateral development projects and programmes dipped slightly in 2006 but were on the rise again in 2007, indicating that donors are gradually scaling up their core aid programmes. Figure 6.1. Components of DAC donors’ net ODA Net debt forgiveness grants Humanitarian aid Multilateral ODA Bilateral development projects, programmes and technical co-operation Constant 2006 USD billion 120 100 80 60 40 20 0 2000 2001 2002 2003 2004 2005 2006 2007 1 2 http://dx.doi.org/10.1787/520131332628 Source: OECD, "Aid Targets Slipping out of Reach?", November 2008, www.oecd.org/dataoecd/47/25/41724314.pdf. Donor performance The largest donors in 2007, by volume, were the United States, followed by Germany, France, the United Kingdom and Japan. Five countries exceeded the United Nations target of 0.7% of GNI: Denmark, Luxembourg, the Netherlands, Norway and Sweden. 102 DEVELOPMENT CO-OPERATION REPORT 2009 – ISBN 978-92-64-05504-9 – © OECD 2009 EFFORTS AND POLICIES OF BILATERAL DONORS In 2007, net ODA by the United States was USD 21.8 billion, representing a fall of 9.8% in real terms. Its ODA/GNI ratio fell to 0.16%. This fall was mostly due to debt relief, which was high in 2006, and a reduction in ODA to Iraq. Excluding debt relief grants, there was an increase in ODA to sub-Saharan Africa (+6.5% in real terms to USD 4.5 billion) and the Least Developed Countries (+4% to USD 4.8 billion). ODA to Afghanistan increased (+5% to USD 1.5 billion) and remained important to Iraq despite a fall in real terms (–24% to USD 3.7 billion). Japan’s net ODA was USD 7.7 billion, representing 0.17% of GNI. The 29.8% fall in real terms was in part due to a decrease in debt relief operations, which were exceptionally high in 2005 and 2006, and to a decrease in contributions to international financial institutions. Japan’s ODA has been on a downward trend since 2000, except for an increase in 2005 and 2006 due to debt relief. The combined ODA of the 15 members of the DAC that are also EU members – which represents nearly 60% of all DAC ODA – fell by 6.6% in real terms to USD 61.5 billion, representing 0.39% of their combined GNI. Again, the fall was mainly due to a decrease in debt relief grants. Excluding these, net ODA from DAC EU members rose by 7.7%. Aid rose in real terms in ten DAC EU countries as follows: ● Germany (+6.1%), reflecting an increase in bilateral aid and contributions to international organisations; ● Ireland (+4.8%), raising its ODA/GNI ratio to 0.55% despite the strong increase in Irish GNI; ● Luxembourg (+15.0%), due to the general scaling up of its aid; ● Spain (+19.7%), mainly due to a rise in its multilateral contributions, within a planned process of sustained scaling-up of its aid; and ● Austria (+8.3%), Denmark (+2.9%), Finland (+6.4%), Greece (+5.3%), the Netherlands (+3.2%), and Portugal (+5.9%) also increased their aid. Aid from other DAC EU countries fell in real terms, due mainly to decreased debt relief: Belgium (–11.2%), France (–16.4%), Italy (–2.6%), Sweden (–2.5%) and the United Kingdom (–29.6%). Excluding debt relief, aid rose in these countries with the exception of the United Kingdom, where net ODA decreased slightly due to sales of equity investments. Net ODA by the European Commission rose by 3.1% to USD 11.8 billion mainly due to increased programme and project aid. Humanitarian aid also increased, and the EC’s disbursement capacity continued to improve. ODA from other DAC countries rose or fell from 2006 to 2007 as follows: ● Australia (+9.1%) as bilateral ODA increased; ● Canada (+1.2%); ● New Zealand (+5.1%); ● Norway (+13.4%), in large part due to increased equity investment; and ● Switzerland (–2.5%), due to a lower volume of debt relief. Performance versus commitments At the time of the Gleneagles G8 and UN Millennium +5 summits in 2005, donors committed to increase their aid. These commitments would raise ODA by USD 50 billion in 2010 compared with 2004 (at 2004 prices and exchange rates). Figure 6.2 shows ODA DEVELOPMENT CO-OPERATION REPORT 2009 – ISBN 978-92-64-05504-9 – © OECD 2009 103 EFFORTS AND POLICIES OF BILATERAL DONORS Figure 6.2. DAC members’ net ODA 1990-2007 and DAC Secretariat simulations of net ODA to 2008 and 2010 % of GNI ODA (2004 USD billion) 0.40 0.37 140 0.35 0.33 0.33 120 0.30 0.28 ODA as a % 0.26 100 0.25 of GNI (left scale) 80 0.20 0.22 0.15 60 Total ODA 0.10 (right scale) 40 0.05 ODA to Africa 20 (right scale) 0 0 199091 92 93 94 95 96 97 98 99 2000 01 02 03 04 05 06 0708 09 10 1 2 http://dx.doi.org/10.1787/520141316201 levels since 1990 and the increase that needs to be achieved to attain the 2010 levels. Excluding debt relief and humanitarian aid, which are expected to return to their historical levels by 2010, the annual growth required to reach the target is 11%. A recent OECD survey1 of donors’ forward spending plans showed that, at country or regional levels, donors have already programmed an additional USD 17 billion by 2010 compared to 2004 levels. Record replenishments of IDA and the African and Asian Development Banks will add about another USD 4 billion to this figure in 2010. Thus, about USD 21 billion of the USD 50 billion promised by 2010 has already been delivered or has been planned. This leaves nearly an additional USD 30 billion in 2004 dollars – about USD 34 billion in 2007 dollars – to be programmed into donors’ aid budgets if their aid commitments for 2010 are to be realised. Aid pledge With the current financial crisis and economic slowdown in most donor countries, there is a general fear that aid budgets will be cut – as happened after the recession in the early 1990s. Between 1992 and 1997, ODA from DAC donors fell from 0.33% to 0.22% of gross national income. The fall was smaller in volume, representing about 20% in real terms, because growth resumed over this period. The OECD’s Secretary-General, Angel Gurría, and the Chair of the DAC, Eckhard Deutscher, have issued a statement2 calling upon the world’s major donor countries to stand by their development pledges in order to prevent the “… financial crisis from generating an aid crisis”, which would have a serious impact on developing countries already struggling with the global food crisis and rising oil prices. The “Aid Pledge” (based on the “OECD Trade Pledge” in the mid-1970s, which helped maintain an open trading system after the first oil price shock), urges DAC members to “… reaffirm their aid commitments and refrain from any budgetary action that is inconsistent with such commitments.” The Follow-up Conference on Financing for Development (Doha, 29 November-2 December) aimed to clarify donors’ future intentions in regard to aid volume.