Development Co-operation Report 2023

Debating the Aid System

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Development Co-operation Report

13 February 2023

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8. Maximising official development assistance

Eleanor Carey
OECD

Harsh Desai
OECD

Abstract

Official development assistance has existed as a concept and practice for over 60 years. For just as long, there has been debate over its purpose, efficiency, effectiveness and impact – questions more relevant today than ever before. Due to domestic circumstances, development co-operation providers face rising budget pressure. At the same time, partner countries’ demands are increasing and evolving. Over the decades, the development co-operation community has built up a set of formal commitments and good practices that, if systematically implemented, could lay the groundwork for maximising official development assistance in the current constrained environment. This chapter draws on evidence from the last decade of DAC peer reviews, statistics and relevant scholarship to provide evidence on the current state of play and barriers to progress on fulfilling key commitments and implementing good practices.

The authors would like to acknowledge and thank the following people for their support in preparing this chapter. Strategic direction was provided by Yasmin Ahmad, Renwick Irvine, Rahul Malhotra, Ida Mc Donnell and Rachel Scott; feedback and input were provided by Aussama Bejraoui, Joelline Benefice, Elena Bernaldo, Emily Bosch, Olivier Bouret, Rebecca Engebretsen, Katharina Gugerell, Anita King, Gaia Manselli, Kristina Mazurenko, Andrea Pace, Santhosh Persaud, Maayan Sacher, Julia Schnatz and Jonas Wilcks.

Key messages

Official commitments and agreed good practices are powerful affirmations of Development Assistance Committee (DAC) members’ intentions and values. Fully implementing them would overcome many of the challenges development co-operation providers face today in a context of constrained budgets and increasing, evolving and context-specific demands from partner countries.
The quantity, stability and relative value of official development assistance (ODA) are shaped by the broader financing landscape in both provider and recipient countries and by domestic budgeting priorities surrounding ODA budgeting decisions. Delivering on financing commitments will be particularly important in light of pressures to finance expenditure on global public goods and respond to crises.
Increased focus on commitments and practices related to the collective impact of DAC members’ ODA would decrease transaction costs for partner countries, enhance economies of scale, better focus ODA budgets on addressing need, and help balance humanitarian interventions and long‑term development impact.
Providing tailored, high-quality ODA requires consideration of finance types, modalities and channels. The COVID-19 crisis triggered significant changes in concessional lending and budget support, reigniting debates about the merits and drawbacks of different approaches. The fragmentation and proliferation of low-value projects increase complexity and management challenges for developing countries. Declining support to country systems is undermining the potential for co‑ordination and alignment.

Official development assistance budgets are increasingly being stretched to respond to unexpected shocks and meet new financing commitments. While relatively stable, ODA levels in the last 20 years have been stagnant. In ODA provider countries, domestic economic circumstances have tightened the fiscal and monetary environments. In this context, maximising the efficiency and effectiveness of ODA is top of mind for DAC members.

Over the course of many decades, DAC members and other actors have coalesced around a suite of commitments and good practices that aim to deliver value for money by targeting the resources available and enhancing the performance of the development co-operation system. This suite of commitments and practices regarding aid quantity and quality does not represent the full range of actions that could be taken to close the gap between ODA supply and demand. However, using the toolkit that the community has built together would lay important groundwork for maximising ODA.

Using the toolkit that the community has built together would lay important groundwork for maximising ODA.

This chapter analyses a subset of these commitments and good practices that DAC members have identified as being the most challenging to systematically implement. The methodology used to identify challenges is presented in Annex 8.A and Annex 8.B provides a full list of challenging commitments and practices as identified by DAC members. The analysis draws on an evidence base made up of DAC peer reviews conducted over the last ten years, DAC statistics and other datasets, and relevant scholarship. The first section presents a snapshot of key trends in these commitments and good practices. Three groupings of commitments and practices are then discussed. The first relates to delivering on financing commitments to grow the overall budget envelope for ODA. The second focuses on commitments to improve the collective impact of development spending. The final group concerns commitments and practices on providing high-quality ODA. Beyond the quantity, allocation and quality of ODA itself, the final section discusses the importance of creating a strong enabling environment by taking policy coherence efforts to the next level. Overall, the analysis illustrates where efforts could be focused to speed up progress.

Snapshot of DAC members’ performance against ambitions in the 2010s

Table 8.1 compares average DAC member performance on ODA targets and good practices, including where ODA is spent, in what form, for what purposes and with what focus for two three-year periods – 2010-12 and 2019-21. These trends are discussed throughout the chapter and could be re-examined in the future as a template for tracking progress on maximising ODA.

In some areas, there was little change: ODA as a share of gross national income (GNI), for example, has remained at 0.3% (on a net flow basis) and the proportions of country allocable ODA by country income grouping varied only slightly over the period. Least developed countries (LDCs) and fragile contexts received the top two highest proportions of country allocable ODA at both the beginning and the end of the period.1

Changes of note from 2010-12 to 2019-21 include a decrease in country programmable aid (CPA), which declined from 54.3% to 47.5%; an increase in humanitarian and food aid from 10.0% to 15.2%; and a doubling of in-donor refugee costs from 4.0% to 8.0% of bilateral ODA. ODA to and through the multilateral system also rose, to 43.4% from 38.0%. The share of bilateral allocable aid with a gender focus rose (45.1% compared to 29.8% at the beginning of the period), as did the proportion of ODA with a climate and environment focus, from 29.3% to 35.9%.

Table 8.1. Snapshot of trends on official development assistance commitments and practices

Comparison of data for all DAC members, 2010-2012 and 2019-2021

Delivering on financing commitments

The wider financing landscape influences the quantity, stability and relative value of ODA and impacts on DAC countries’ ability to deliver on financing commitments. The value of ODA delivered at its destination is also mediated by domestic and global factors such as country debt level and currency fluctuations, both of which have been particularly acute in recent years. The confluence of several of these factors at present is constraining supply and undermining the value of ODA. There are also a number of pre-existing practical and conceptual challenges to the foundation of financing targets as well as questions regarding whether they are the most effective way to ensure that low- and middle-income countries receive support aligned with their needs and priorities, which help to explain slow progress.

Global and domestic pressures impact the value of ODA and developing countries’ resources

Given that ODA is a flow, most often country to country, from development co-operation providers to recipients, circumstances at its origin and its destination as well as wider global trends have an impact on its levels and relative value.

ODA is a small government expenditure item but could be affected by a gloomy economic outlook

At its origin, ODA represents a very small portion of DAC members’ government spending. On average, general government spending among DAC members in 2020/21 ranged from 27% to 61% of GDP, while ODA accounted for just 0.33% of combined GNI in 2021 (Figure 8.1).

Figure 8.1. Official development assistance is a small expenditure item within general government spending

While ODA accounts for relatively low proportions of government budgets, slowing economic growth and rising inflation across OECD countries could dampen overall government spending. A number of DAC members have already announced ODA budget cuts (OECD, 2022[4]).

For developing countries, the role ODA plays depends on other external flows, domestic resources and levels of debt

At its destination, ODA is one of three major sources of external financing for developing countries, alongside remittances and foreign direct investment (FDI). While ODA represents the smallest share of the three, it has been the most stable resource over the last two decades, even increasing from 2020 to 2021 when the COVID-19 crisis caused other resource flows to decline (Figure 8.2). FDI in developing countries is expected to have declined further in 2022 by an estimate 23% from 2021 levels (OECD, 2022[5]).

Figure 8.2. Official development assistance remains a stable and predictable resource for developing countries and territories

In addition to external resources, developing countries have their own domestic resources to call upon to finance sustainable development spending. The accepted global benchmark for a government’s ability to fund basic services is a tax-to-GDP ratio of 15% (Junquera-Varela and Haven, 2018[8]), which many countries in developing regions do not meet (Table 8.2). The varied composition of government revenue across regions and countries means that ODA as a government expenditure differs in importance relative to other revenue sources. That difference between countries can be substantial. For instance, non-tax revenue as a proportion of GDP ranges from 1.2% to 218.7% across Asia and the Pacific, and across Africa, grants as a proportion of non-tax revenue differ widely, ranging from less than 1% up to nearly 90% in different countries.

	Tax revenue % of GDP (average and range)	Of which are taxes on goods and services	Non-tax revenue % of GDP	Of which are grants (average and range)
Africa	16.6% (6-34.3%)	51.9%	6.3%	28.9% (0.1-89.6%)
Latin America and the Caribbean	21.9% (12.4-37.5%)	48.4%
Asia and the Pacific	19.1% (8.9-47.5%)	50.6%	1.2-218.7%	0-65.4%
OECD	33.8% (17.93-46.54%)	32.6%

Notes: Data for each region are for either 2019 or 2020, depending on which is the most recent year available. Grants has a narrower definition than official development assistance and does not include the value of concessional loans. Blanks indicate no available data.

Sources: OECD/AUC/ATAF (2021[9]), Revenue Statistics in Africa 2021, https://doi.org/10.1787/c511aa1e-en-fr; OECD et al. (2022[10]), Revenue Statistics in Latin America and the Caribbean 2022, https://doi.org/10.1787/58a2dc35-en-es; OECD (2022[11]), Revenue Statistics in Asia and the Pacific 2022: Strengthening Tax Revenues in Developing Asia, https://doi.org/10.1787/db29f89a-en.

The share of ODA in overall government expenditure also varies greatly. Net ODA received accounted for over 10% of central government expenditure in 53 countries and, in 4 of these, over 100% of central government expenditure in the most recent year for which data are available for each country (World Bank, 2022[12]). This degree of dependence on ODA can leave countries vulnerable to fluctuations in ODA. Thirteen African countries experienced a one-year drop in grant revenues equivalent to at least 1% of GDP between 2010 and 2020 (OECD/ATAF/AUC, 2022[13]).

Net ODA received accounted for over 10% of central government expenditure in 53 countries and, in 4 of these, over 100% of central government expenditure.

Debt is another factor affecting ODA at its destination. At the end of 2021, the external debt of low- and middle‑income countries totalled USD 9 trillion and about 60% of the poorest countries were already at a high risk of debt distress or already in distress (World Bank, 2022[14]). Debt servicing as a proportion of GNI in the LDCs began to rise in 2010 as government revenue and ODA fell (Figure 8.3).

Figure 8.3. Debt service has been increasing while government revenue and official development assistance have been declining in least developed countries

Illicit financial flows undermine all sources of finance. It is estimated that Africa loses in excess of USD 50 billion annually to these flows (African Union, 2021[16]) and the problem is growing (UNCTAD, 2021[17]). Illicit financial flows are a relational phenomenon requiring action not only where they originate but also in countries they transit through and at their destination, which often are OECD countries.

Ripple effects of the strong US dollar on aid and developing countries’ costs

The strong US dollar, which was at its highest level since 2000 in October 2022, is partly responsible for driving up the cost of debt repayments amid the general weakening of most other currencies around the world (Gopinath and Gourinchas, 2022[18]). For developing countries, which often borrow in US dollars, paying down debt in dollars when the exchange rate is so unfavourable becomes more expensive in local currency (Estevão, 2022[19]). Even for countries that hold debt issued by the People’s Republic of China (hereafter “China”), repayments are largely made in US dollars, and loans are often at adjustable rates that drive up repayments as rates rise (Bradsher, 2022[20]). Some innovations by DAC members, including increasing access to local currency financing, are helping to counter this risk (KfW, 2020[21]).

The strong dollar is also contributing to global inflation, and ODA would need to rise by about an additional USD 13 billion in 2022 to compensate. Even for countries with low levels of US dollar debt, the same basket of goods costs more in local currency in late 2022 than at the same time in 2021 because the dollar dominates so much of international trade (Rennison and Simonetti, 2022[22]).

The strong dollar is also driving global inflation, and ODA would need to rise by about an additional USD 13 billion in 2022 to compensate.

Currency fluctuations also impact the value of ODA. India offers an illustration of how significant the changes can be. The largest recipient of DAC bilateral net ODA in 2021, India received aid from multiple providers, the largest being Japan (68.5% of the total received by India in 2021), Germany (20.4%), the United States (3.8%) and the United Kingdom (3.6%). As shown in Table 8.3, exchange rates changed substantially over the course of the first nine months of 2022, with potentially significant effects for India.

Date	US dollar	Indian rupee	Japanese yen	Euro	UK pound
4 January 2022	1	74.5717	115.42	1.1279	1.34955
19 October 2022	1	82.3735	149.18	0.9778	1.1256

Source: IMF (2022[23]), IMF Exchange Rates (database), https://www.imf.org/external/np/fin/ert/GUI/Pages/CountryDataBase.aspx.

For example, without any adjustments to compensate for currency fluctuations, JPY 1 (Japanese yen) committed to India at the beginning of 2022 would have been worth INR 0.64 (Indian rupee). If that same JPY 1 was disbursed on 19 October 2022, it would have been worth INR 0.55 – a depreciation of 14.2%. Agreements between development co-operation providers and recipients regarding which party bears the risk of currency fluctuations determine whether and how much these movements ultimately affect the value of ODA.

ODA levels have failed to reach international targets

The United Nations (UN) General Assembly first adopted the target for advanced economies of 0.7% of GNI to be allocated to ODA in 1970 (UN, 1970[24]), and it has been reinforced in many subsequent international forums:2 at the Group of Eight 2005 Gleneagles Summit, DAC members made country‑specific pledges to meet certain ODA levels by 2010, and the 2015 Addis Ababa Agenda for Action cited the 0.7% target as critical to the success of the 2030 Agenda (UN, 2015[25]). Despite commitments, however, performance against the target has plateaued since 2005, with ODA at about 0.3% of collective DAC members’ GNI. In 2021, ODA reached 0.33% of their collective GNI (Figure 8.4).

Figure 8.4. The ratio of official development assistance to gross national income among DAC countries has plateaued since 2005

A few DAC members consistently meet the target; the majority have never met it (Figure 8.5). But had the DAC collectively met the 0.7% target in 2021, total ODA would have reached USD 389 billion, more than double the actual amount of USD 186 billion.

Had the DAC collectively met the 0.7% target in 2021, ODA would have reached USD 389 billion, more than double the actual amount of USD 186 billion.

Figure 8.5. Achievement of the 0.7% target varies widely across DAC countries

Adoption of the 0.7% target has been uneven and budget cuts are hampering progress

Some DAC members have not officially adopted the target or have adopted a lower or intermediary target, and several DAC peer reviews noted that they had no time-bound plans to reach targets. Between 2018 and 2021, some DAC members’ ODA/GNI ratios were trending downward. Several have already enacted ODA budget cuts or signalled intentions to do so in 2022 and beyond (Annex 8.C). Given that ODA accounts for such a small proportion of government budgets in DAC countries, savings garnered from these cuts are and will be minimal.

Given that ODA accounts for such a small proportion of government budgets in DAC countries, savings garnered from these cuts are and will be minimal.

While budget cuts are sometimes justified as a response to declining public support for ODA, public opinion data show that a growing share of the public in most DAC countries supports increased ODA budgets. Recent crises such as COVID-19 have not led to a retrenchment of support for aid spending, particularly if that spending is perceived as contributing to tackling a shared crisis – for example, limiting the spread of COVID-19 infections (Raftery and Hudson, 2022[26]; Wood, 2022[27]; Kobayashi, Heinrich and Bryant, 2021[28]). Evidence suggests that perceptions of corruption, ineffective spending and abuses within the aid system, however, do have a strong negative influence on public opinion (EKOS Research Associates Inc., 2022[29]; Kiratli, 2020[30]; Kim and Kim, 2022[31]; Heinrich et al., 2020[32]).

Some countries are taking steps to meet financial commitments to partners. These budgeting mechanisms, aimed at offsetting the impact of changes such as economic slowdowns or sudden increases in some categories of cost, include multiannual allocations (Ireland, New Zealand), budget balancing (Denmark) and borrowing from future years (Netherlands) (OECD, 2022[33]; 2021[34]). Each approach has its drawbacks, but members’ willingness to explore such mechanisms can help maintain progress towards the ODA/GNI target even when their domestic economic circumstances are difficult.

Practical and conceptual challenges undermine progress towards the 0.7% ODA/GNI target

Targets can be interpreted as caps

Targets can be seen as an upper limit for spending – a cap rather than a goal to achieve and exceed. For example, from 2015 to 2021, the United Kingdom had a statutory duty to meet the 0.7% ODA/GNI target. In 2021, citing the economic impact of the COVID-19 pandemic, the government announced it would allocate 0.5% of GNI to ODA (Loft and Brien, 2022[35]), and then froze spending when it came close to exceeding that amount. Norway is proposing to lower its ODA spending from 1% to 0.75% of GNI due to record oil and gas revenue (Chadwick, 2022[36]). In Denmark, the budget-balancing mechanism that works to keep ODA at close to the ratio of 0.7% is also used to ensure that the ODA budget does not significantly exceed that target (OECD, 2021[34]).

New financing targets could undermine ODA

Lack of growth in ODA is particularly significant in relation to the recent trend of increased financing for global public goods from aid budgets. While DAC statistics do not capture this expenditure precisely and in full, an analysis shows that DAC member countries’ ODA spending on global public goods grew from an estimated 30% of average bilateral ODA in 2006-10 to about 57% in 2016-20. Most of the growth in spending was related to climate change, costs for refugees in development co-operation provider countries and food security. Spending on infectious diseases surged by nearly 50% in 2021 data reflecting the response to the COVID-19 pandemic (Figure 8.6).

Figure 8.6. DAC member countries’ aid budgets are increasingly being used to finance global public goods

The substantial financing required to support low- and middle-income countries to tackle climate change, and particularly fulfilling the United Nations Framework Convention on Climate Change’s annual commitment of USD 100 billion, could drain budgets for other development priorities in a context of relatively flat ODA budgets (Box 8.1). Among the suggestions floated to protect ODA spending is to create a new tier of spending over and above the 0.7% target (Kharas, Rogerson and Cichocka, 2020[38]) and to update the overall structure of international financing to separate ODA, global public goods financing mechanisms and crises response mechanisms (Kaul, 2020[39]). Others have proposed adding a new mobilisation target for ODA focused on poverty reduction in the LDCs and fragile contexts and a complementary “international development investment” policy for climate, though it is acknowledged that separating out flows for development and climate is difficult in practice (Melonio, Rioux and Naudet, 2022[40]).

At the same time, peer reviews have noted that climate has become a stronger component of the development narrative for many DAC members and that spending on climate helps maintain support for ODA. Many advocacy groups call for additional financing. Enhanced transparency around the relationship between ODA and climate finance could help achieve the right balance between development and climate spending while highlighting their strong interlinkages (Box 8.1).

Box 8.1. Climate finance and official development assistance: Current approaches to accounting

Tracking progress towards the USD 100 billion climate goal

At the 15^th Conference of Parties (COP) of the United Nations Framework Convention on Climate Change in Copenhagen in 2009, developed countries committed to a collective goal of mobilising USD 100 billion per year by 2020 for climate action in developing countries in the context of meaningful mitigation actions and transparency on implementation. The goal was formalised at COP16 in Cancun. It was reaffirmed at COP21 in Paris, and the target was extended to 2025.

At the request of donor countries, the OECD has tracked progress towards this goal since 2015, producing a series of reports that quantify finance for climate action that is attributable to developed countries. According to the 2022 edition of the report, developed countries provided and mobilised USD 83.3 billion for climate in 2020.

The analyses are based on a robust accounting framework, an outcome of COP24 on funding sources and financial instruments, that looks at four finance components:

1. bilateral public climate finance from developed countries

2. public climate finance provided by multilateral organisations attributed to developed countries (adjusted to take into account only the developed countries’ share)

3. climate-related export credits

4. private finance mobilised by bilateral and multilateral public climate finance attributed to developed countries (adjusted in the case of private mobilisation by multilateral organisations).

Balancing climate and development finance needs and promoting transparency

Fulfilling the USD 100 billion annual commitment requires not only a wide variety of financing sources but also the entire international development and climate community’s effort. Providers must strike the right balance between the increasing urgency for climate action and the need to continue support to achieve the Sustainable Development Goals (SDGs) of the 2030 Agenda. Given the cross-cutting nature of climate action and its relevance across the entire spectrum of development finance, strong co-ordination at all levels and among all relevant actors is essential to meet the climate commitment while leaving no one behind.

An equally strong goal must be to actively promote transparency as the agent of accountability in its broadest sense. To deliver on such high expectations, statistical systems that track providers’ efforts on climate and beyond need to ensure that the evidence they provide meets the highest standards and is as accurate and fit-for-purpose as possible.

In this regard, donors should finalise the official development assistance (ODA) modernisation process by finding a permanent solution for measuring donor effort in private sector instruments. This would not only strengthen ODA integrity but also promote development effectiveness and establish the Development Assistance Committee’s leadership on transparency of development finance, including for climate. For example, such a measure would allow greater involvement of the private sector in financing for sustainable development, including for climate; improve the picture of real receipts by developing countries; and increase awareness of their impact. In addition, donors and multilateral agencies both need to further their normative role in actively promoting transparency. Better-quality and more comprehensive data are key to greater accountability and greater trust in the development co‑operation system. For example, strengthened activity-level reporting on disbursements, whether in the context of ODA or other development finance, and private finance mobilisation are necessary for improved understanding of real resource flows to developing countries.

Note: Contributed by Tomas Hos, Development Co-operation Directorate, OECD, and Chiara Falduto, Environment Directorate, OECD.

Sources: UN (2022[41]), “Goal 13: Take urgent action to combat climate change and its impacts”, https://www.un.org/sustainabledevelopment/climate-change; OECD (2015[42]), Climate Finance provided and mobilized by developed countries in 2016-2020 https://doi.org/10.1787/286dae5d-en.

Perceptions regarding developing countries’ capacity to spend ODA effectively to achieve development outcomes

Particularly for providers of large volumes of ODA, concerns about a recipient country’s capacity to use ODA effectively factors into decisions about increasing ODA allocations. The argument that there are negative returns to growth from aid at high levels (Lensink and White, 2001[43]), coupled with questions about ODA recipients’ commitment and capacity to effectively channel ODA to achieve developmental goals (Dercon, 2022[44]), are significant obstacles to achieving higher budget allocations for ODA.

Challenges to the concept of the 0.7% ODA/GNI target

The economic assumptions and calculations that underpin the 0.7% ODA/GNI target have been challenged. A more fundamental issue, however, is that the target is tied to advanced economies’ output rather than the level of ODA required to meet the needs of developing countries (Clemens and Moss, 2005[45]). Amid escalating calls to dismantle power asymmetries in development co-operation, basing ODA allocations on the GNI of provider countries could also be questioned. Another conceptual challenge is that in striving to meet the 0.7% ratio, providers may place a greater emphasis on quantity rather than quality – that is, on the volume of spending rather than the impact of aid in developing countries and whether it helps meet international goals (Dissanayake, 2021[46]).

Focusing on collective impact

ODA is the result of budgetary decisions of individual countries and organisations. However, ODA from different providers converges in a finite group of ODA recipients and many of the commitments and good practices relate to the collective impact of ODA flows. Changes in the composition and focus of the aggregate ODA portfolio over time suggest that response to increasing crises may have significant implications for other spending, particularly CPA. In addition, an examination of the rationale and practical considerations that influence the allocation of ODA to developing countries shows that divergent approaches or the absence of a collective systematic approach result in ODA not being consistently allocated according to need. Finally, budget cuts and lack of strategic engagement are undermining the potential of allocations to the multilateral system to enhance collective impact.

Responding to crises may have implications for ODA composition and focus

Clearly articulating thematic and sectoral priorities is key to the aid effectiveness agenda in that it enables complementarity, reduces fragmentation and helps identify each provider’s comparative advantage. Together these increase transparency for developing countries and can better inform their choice of partners. Sectoral allocations at the collective level have been relatively stable over time. Social infrastructure and services typically receive the largest share of bilateral ODA (OECD, 2022[47]) (Figure 8.7). ODA to this sector spiked in 2021 due to increased health spending to respond to the COVID‑19 crisis.

Figure 8.7. Social sectors have historically received the largest share of DAC members’ official development assistance

The focus on social sectors in low-income countries (LICs) has been consistent across DAC members and multilateral organisations. Support to economic sectors is greater in LMICs than in LICs (Figure 8.8).

Figure 8.8. DAC members have focused relatively more on social sectors in low-income countries and economic and production sectors in middle-income countries over time

Peer reviews show that DAC members are recently more clearly articulating their priorities. Canada outlines 6 action areas in its Feminist International Assistance Policy (Government of Canada, 2021[48]); Germany’s 2030 Reform Strategy for development co-operation identifies 5 core areas and 10 initiative areas (German Federal Ministry for Economic Cooperation and Development, 2022[49]); and New Zealand has outlined 12 aid and development investment priorities (New Zealand Foreign Affairs and Trade, 2022[50]).

However, allocations do not always align with priorities. Some notable shifts have occurred in the overall ODA portfolio that were not signalled in individual or collective strategies. From 2010 to 2021, the volume of DAC countries’ humanitarian aid grew by 111% and increased by five percentage points as a share of total gross ODA. ODA to in-donor refugee costs within DAC countries increased by 242% over the same period. At the same time, the share of bilateral ODA that is country programmable aid has been shrinking. CPA is the portion of aid providers can programme for individual countries or regions and over which partner countries could have a significant say. The increase over the last decade in humanitarian aid, which is excluded from CPA on the basis that it is not programmable, is one reason why the share of CPA from DAC countries has fallen from an average of 54.4% of bilateral ODA in 2010 to 44.9% by 2021, despite a small increase between 2019 and 2020 (Figure 8.9). From 2020 to 2021, CPA declined while ODA to in‑donor refugee costs and humanitarian assistance increased.

From 2010 to 2021, the volume of DAC countries’ humanitarian aid grew by 111% and increased by five percentage points as a share of total gross ODA.

Figure 8.9. Humanitarian aid and official development assistance spending on in-donor refugee costs increased much more than country programmable aid over the period 2010-21

In 2021, CPA remained less than half of total ODA for the seventh consecutive year. In most of the countries where CPA increased as a share of bilateral ODA, the rise was associated with an overall ODA increase. The impacts of recent crises, including Russia’s war of aggression against Ukraine, are likely to lead to a further increase in both humanitarian assistance and spending on refugees in donor countries (Ahmad and Carey, 2022[51]). A stable or more constrained ODA budget environment could further decrease CPA and have implications for long-standing sectoral allocations that development co‑operation providers, individually and collectively, will need to consider. Humanitarian budgets are also under pressure to adapt to these new pressures. Box 8.2 highlights ways in which implementing good practices and commitments can provide a basis for action.

Box 8.2. A new normative environment for humanitarian spending

Humanitarian funding requirements are estimated to have quadrupled since 2010. As the frequency, intensity and length of emergency situations requiring humanitarian support have increased, the development, humanitarian and peace communities have recognised the need to work together in new ways. This is reflected in the Grand Bargain agreed upon at the World Humanitarian Summit in 2016 and the DAC Recommendation on the Humanitarian-Development-Peace Nexus.

While some progress has been made towards these commitments, it has been uneven across Development Assistance Committee members. Peer reviews highlight the need for better co-ordination across different entities within administrations to align budget cycles, risk appetite and ways of working.

The increasing demands on humanitarian aid highlight the challenges to maximising official development assistance (ODA) in a period of sustained crisis when budgets are stretched and the need to engage local-level resources is increasingly acknowledged.

Longer term funding: Unpredictable funding flows pose a particular challenge to adequate planning and response. In a promising trend, a number of providers are shifting from short-term, project-based grants to multiannual financing (e.g. Belgium, Denmark, the European Union, Germany, Ireland, Switzerland and the United States). Pooled or multi-partner funds can be particularly useful in humanitarian situations as shown by the UN Multi-Partner Trust Fund for Sustaining Peace in Colombia; the Democratic Republic of the Congo’s DRC Stabilization Coherence Fund; and the Iraq Reform, Recovery and Reconstruction Fund.

Locally led development: As crisis situations can change rapidly, providers are being encouraged to put mechanisms in place to shift power to local actors to better navigate complex situations. Some countries (e.g. the Czech Republic, France and Spain) have made significant headway. As highlighted in peer reviews, however, the concentration of humanitarian funding in the multilateral system can sometimes leave only a small portion of providers’ budgets available to be channelled to local humanitarian actors. Peer reviews also found that legislative barriers to working with local actors and preferential bias for large, comparatively well-resourced and trusted partners were significant impediments to localisation.

Empowering those in need: The rise in cash and voucher assistance is seen as a positive development to empower recipients and became more popular during the COVID-19 crisis. Cash has become a key pillar of humanitarian support for large providers such as Norway, Sweden, Switzerland, the United Kingdom and the United States.

As humanitarian needs and budgets rise, continuing to strive to meet international commitments will help maximise ODA and its impact.

Sources: ALNAP (2022[52]), “The state of the humanitarian system, 2022 edition: Key facts and figures”, https://sohs.alnap.org/news/the-state-of-the-humanitarian-system-2022-edition-key-facts-and-figures; OECD (2022[53]), States of Fragility 2022, https://doi.org/10.1787/c7fedf5e-en; Development Initiatives (2022[54]), The Global Humanitarian Assistance Report 2022, https://devinit.org/documents/1193/GHA2022_Digital_v8_DknWCsU.pdf; OECD (2020[55]), Development Co-operation Report 2020: Learning from Crises, Building Resilience, https://doi.org/10.1787/f6d42aa5-en; OECD (2019[56]), Better Criteria for Better Evaluation: Revised Evaluation Criteria Definitions and Principles for Use, https://www.oecd.org/dac/evaluation/revised-evaluation-criteria-dec-2019.pdf; Inter-Agency Standing Committee (2016[57]), The Grand Bargain: A Shared Commitment to Better Serve People in Need, https://interagencystandingcommittee.org/system/files/grand_bargain_final_22_may_final-2_0.pdf.

ODA is not consistently allocated according to need

The concept of allocating ODA according to need is a helpful prioritisation logic that the development community can use to navigate trade-offs and improve the targeting of aggregate ODA. However, this prioritisation method has not been consistently applied.

DAC members have not achieved the ODA/GNI target for the LDCs

In 1981, DAC development co-operation providers committed to provide between 0.15% and 0.20% of their GNI in the form of ODA to least developed countries. In 2021, 0.09% of collective GNI was allocated to the LDCs, the level it has hovered at since the commitment was made (OECD, 2022[58]) (Figure 8.10).

Figure 8.10. Aid to least developed countries has declined over time and falls short of the 0.15-0.2% target

The greatest volume of ODA to the LDCs is allocated by larger providers (in descending order, the United States, Japan, Germany, the United Kingdom, France and Sweden). Smaller donors tend to give larger shares of their country allocable ODA – more than two-thirds – to the LDCs (Belgium, Denmark, Finland, Iceland, Ireland, Luxembourg and the Netherlands). Others provided less than 15% of their country allocable aid to LDCs (Greece, Hungary, Poland, the Slovak Republic and Slovenia). DAC peer reviews over the last decade have expressed concern that the focus on the LDCs was weak or weakening. This trend is also evident in private finance mobilised by DAC members: It mostly benefits upper middle-income countries, with smaller shares going to the LDCs and LICs (OECD, 2022[59]).

DAC member countries’ net bilateral ODA unallocated by income group rose by 74% in volume and by ten percentage points (from 34.2% to 44.7%) as a share of total ODA from 2010 to 2021 (Figure 8.11). In 2021, the volume of aid unallocated by income group was the highest ever. In contrast, bilateral aid to the LDCs declined by more than five percentage points as a share of DAC member countries’ total bilateral aid over the same period.

In 2021, the volume of aid unallocated by income group was the highest ever.

Figure 8.11. The share of DAC countries’ bilateral aid that was unallocated by income group rose between 2010 and 2021

Allocation of bilateral ODA has become more focused on middle-income countries

Between 2010 and 2021, bilateral ODA from DAC countries to the LMICs increased by 15% and to the UMICs by 18%, while only increasing by 10% for the LDCs and other LICs. ODA accounts for a much larger share of external flows to the LICs (63%) than it does for other income groups (37% in the LMICs and 20% in the UMICs) (OECD, 2022[60]). However, allocations do not reflect need or dependence. Excluding additional allocations for COVID-19 response, gross bilateral ODA from DAC member countries fell for all groups of countries except the UMICs from 2019 to 2020 and the LDCs and LMICs from 2020 to 2021 (OECD, 2022[33]). An increase in concessional outflows by multilateral organisations across all income groups – a consistent pattern since 2010 – partly compensates for the decline between 2019 and 2020.

Peer reviews have found that the increase in allocations for middle-income countries is partly driven by issue-based ODA allocations (e.g. climate mitigation or providing humanitarian aid for refugees), and a recent OECD (2022[61]) report noted a similar trend for multilateral outflows. Peer reviews also found that for DAC members with a growth model predicated on lending, such a model can encourage higher allocations to middle-income countries and potentially profitable sectors (OECD, 2018[62]). The need to support global public goods is one of the arguments made in favour of higher allocations to middle-income countries. Another is that poverty and vulnerability to climate change continue to warrant ODA assistance regardless of the income category of the country in which they occur (Carbonnier and Sumner, 2012[63]). By 2030, middle-income countries will be home to almost half of the global poor (Kharas and Dooley, 2022[64]). However, it is also argued that middle-income countries’ greater ability to pay for basic services and greater access to market finance should be taken into account (Manuel et al., 2018[65]). This debate suggests that development co-operation providers should strongly consider how ODA allocated to middle-income countries is targeted (Dissanyake, Kenny and Plant, 2020[66]).

From 2010 to 2021, sector allocable aid consistently accounted for the largest proportion of ODA in middle‑income countries. Over the same period, sector allocable aid declined for LDCs, while humanitarian aid for the same group rose by ten percentage points (Table 8.4).

Table 8.4. The focus of DAC members’ bilateral ODA across income groups has shifted over time

Share of total bilateral ODA

ODA is not allocated according to poverty or inequality metrics

DAC members’ ODA does not show a strong or consistent relationship to extreme or multidimensional poverty (Figure 8.12).

Figure 8.12. On aggregate, DAC members are not allocating their official development assistance according to typical measures of need

There are also many different conceptualisations and measures of need that can be taken into account when allocation decisions are being taken. As discussed in Box 8.3, taking these decisions is more complex.

Box 8.3. What it would mean to allocate official development assistance with an inequality lens

At their 2020 High Level Meeting, Development Assistance Committee (DAC) members committed to “tackling inequality between all people in our ODA policies and programmes more actively”. However, targeting inequality has not been a key focus to date in official development assistance (ODA) allocations. Nor is operationalising this commitment a straightforward process. Early analysis indicates that DAC members’ spending is not targeted to tackle inequality against each of the three potential measures of need.

1. Levels of income inequality within countries. An analysis of ODA allocations relative to recipient countries’ income inequality, as measured by the Gini coefficient or the Palma ratio, found no clear pattern.

2. People experiencing systemic discrimination and inequalities. In 2019-20, 45% of total bilateral allocable ODA (USD 56 billion) supported gender equality and women’s empowerment objectives; 7% (USD 6.2 billion) supported the inclusion and empowerment of persons with disabilities (Finland and Italy are notable leaders in this regard); and just 1.1% (about USD 1 billion) went to human rights programming targeting specific groups.

3. Sectors that have demonstrated impact in reducing inequalities. Some insights emerge from the analysis of allocations to sectors that affect income distribution (e.g. inclusive growth and living wages, education, and health) and contribute to more equitable income redistribution (e.g. progressive domestic revenue mobilisation, fiscal transfers through social protection). One such insight is that social protection spending has been consistently low. Though it nearly tripled in volume from 2019 to reach USD 2.5 billion in 2020, social protection spending still represented just 1.5% of DAC members’ bilateral ODA.

The DAC’s Community of Practice on Poverty and Inequalities offers a space for learning and exchange among DAC members and partners to further explore these questions and help sharpen development co-operation’s focus, allocations and impact on poverty and inequality reduction.

Source: Contributed by Julie Seghers, Policy Analyst, Development Co-operation Directorate, OECD.

Categorisations of need overlap while the use of allocation models is at an early stage

Lack of progress towards targets and lack of consistency in allocating according to need may be partly explained by the fact that there are multiple and overlapping categorisations of need that can be based on national income levels, geographic characteristics, or levels of political and socio-economic development and stability (OECD, 2022[58]). These overlaps can cause tensions: For example, if fragile contexts are increasingly middle income, then increased allocations to fragile contexts may lead to a decrease in allocations to the LICs. Another tension is over allocation by absolute levels of poverty versus by levels of poverty relative to population size. Collectively, development co-operation providers will need to carefully consider these types of trade-offs.

If fragile contexts are increasingly middle income, then increased allocations to fragile contexts may lead to a decrease in allocations to the LICs.

Allocation models can be a helpful tool to account for multiple indicators of need. But to date, their implementation has been uneven across development co-operation providers. The EU has implemented a new methodology based on GNI per capita, the Human Assets Index, the Economic Vulnerability Index and Worldwide Governance Indicators. Austria, Belgium, Ireland and Switzerland all explicitly target poverty reduction. The International Development Association, housed at the World Bank, uses the Performance-Based Allocation System, which combines measures of country performance and country need (International Development Association, 2020[69]). Models are increasingly being called for that more deliberately include vulnerability (UN, 2022[70]; Guillaumont, Guillaumont Jeanneney and Wagner, 2020[71]) or resilience (Kharas, Rogerson and Cichocka, 2020[72]) in their calculations.

One proposal to achieve cross-system maximisation is to use an indicator of the extent to which individual development co-operation providers move the global distribution towards a pre-agreed model (Mitchell and Hughes, 2020[73]).

Budget cuts, increased earmarking and lack of strategic engagement undermine the value of the multilateral system

Allocations to the multilateral system can have a multiplier effect on ODA that flows through it (OECD, 2022[61]). EU joint programming, for example, aims to make aid more coherent and less fragmented, reduce duplication and pressure on individual providers through the division of labour, and achieve better value for money (European Commission, 2022[74]). Multi-partner trust funds and country-based pooled funds can also help to avoid proliferating single-donor initiatives (OECD, 2021[75]). Bilateral ODA implemented through multilateral organisations became particularly important during the pandemic response, rising by 14% between 2019 and 2020 and a further 9% from 2020 to 2021 (OECD, 2022[33]). This indicates that the multilateral system’s ability to respond to emergencies and provide economies of scale is a critical function (OECD, 2020[55]).

DAC members are the largest providers to the multilateral system, accounting for 80% of total contributions (OECD, 2022[61]). Core contributions from DAC member countries to multilateral organisations rose by 7.7% in 2020 and a further 9.8% in 2021; however, the budget cuts that large providers recently announced are expected to have a disproportionate impact on multilateral financing (Gulrajani, 2022[76]). These cuts will likely lead to a further increase in earmarked contributions and in fragmentation from a proliferation of single-purpose initiatives and vertical funds (OECD, 2022[61]). These trends are out of step with the aims of the UN Funding Compact, which appealed for increased core funding (UNGA Economic and Social Council, 2019[77]). Peer reviews have found that earmarking by some DAC members is a reaction to perceptions that multilaterals are not reforming fast enough.

Figure 8.13. DAC countries’ contributions have become increasingly earmarked over time, though core contributions grew as a share of the total from 2020 to 2021 to reach a historic high in 2021

Only a few DAC members have an overall strategy for multilateral engagement. These take the form of official policies and strategies (e.g. Germany and Sweden) or white papers (Sweden) (OECD, 2021[75]). The absence of a strategy for this engagement, or the use of strategies that do not extend beyond the development arm of the government, become particularly problematic when multiple parts of a government are engaged with multilateral organisations.

Improving ODA quality

The 142 countries currently eligible to receive ODA are highly diverse, and tailoring support to each context is key to achieving high-quality ODA. Tailoring requires considering more than ODA levels and allocations. It is also critical to pay significant attention to financing types, modalities and channels. The COVID-19 crisis triggered a rise in concessional lending and budget support, reigniting debates about the benefits and drawbacks of each. The number of countries to which a development co-operation provider gives ODA and the level of their engagement are also key quality metrics. But evidence shows that there is significant fragmentation and proliferation and that the political economy of individual developing countries is rarely a focus. Whether ODA is tied or untied is another long-standing quality issue, with commitments reaching back to the early 2000s. Yet the urgency required to overcome outstanding barriers is lacking.

Concessional lending is an important ODA mechanism, but conditions should be closely monitored

DAC countries’ lending to other countries (bilateral sovereign loans on a grant equivalent basis) increased by 35% in real terms between 2018 and 2020 but fell by 4.0% and represented just 9.7% of bilateral ODA in 2021. The provision of loans, which accounted for about one-third of COVID-19 finance from DAC members, has been criticised for adding to debt stock in a landscape dominated by market debt and bilateral lending from providers outside the DAC. However, concessional DAC lending continues to play an important role, and demand for it remains high (Custer et al., 2021[78]). Lending capacity is an important additional tool for DAC members to respond to context-specific needs and can help top up public development finance (OECD, 2018[62]; 2020[79]).

In addition to monitoring the amount of lending to particular countries and the debt levels of the countries, it is essential to tailor the characteristics of loans to the context. By transitioning to the grant equivalent methodology, i.e. counting only the grant equivalent of loans as ODA, DAC members sent a collective signal of intent to incentivise lending on highly concessional terms (OECD, 2022[33]). However, this has not had the desired effect for all income groups. For example, from 2015 to 2019, conditions for ODA lending to the LDCs hardened, with average grant elements and maturity periods falling and interest rates rising. Conditions in 2020 led to a reversal of this trend for lending to the LDCs, with higher average grant elements and maturity periods and interest rates at almost half their 2019 levels. However, in 2021, there was a hardening of terms to the LDCs again (Table 8.5). Conditions have not returned to levels as favourable as those in 2015.

Table 8.5. Conditions for ODA lending to LDCs have hardened over time

Characteristics of official development assistance loans to least developed countries, 2015-2021

Budget support increased during the COVID-19 crisis, reigniting debates about impact, conditionalities and relevance

Budget support is considered one of the most consistent mechanisms for implementing the Effectiveness Principles and an appropriate modality to support greater recipient country ownership (DEval, 2018[80]). It can achieve multiple development outcomes, including capacity building, system strengthening, supporting the social contract and improving public services for the poorest.

Budget support, encompassing general budget and sector support, flows directly into a partner government’s budget and enables recipients to use their own financial management systems and budget procedures. By the late 2000s, multi-donor budget support comprised up to 30% of central government spending in sub-Saharan African countries, with development co-operation providers citing positive impacts on pro-poor spending and quality of service delivery (Knoll, 2008[81]); increased spending in education and health; and additional effects such as strengthening macroeconomic stability in partner countries (Rønsholt, 2014[82]).

However, opponents of budget support argue that it is a disincentive to domestic resource mobilisation and carries high fiduciary and political risks. Its use declined in recent years in the wake of corruption cases and amid perceptions of intrusive development co-operation provider influence in developing countries (DEval, 2017[83]). The volumes of bilateral development co‑operation providers’ budget support have significantly declined since 2013, making it a modality used more often by multilateral development co‑operation providers than by DAC members (DEval, 2018[80]). At the time of its last peer review in 2018, the EU, a multilateral body, provided the highest level of budget support among DAC members (OECD, 2018[84]).

The COVID-19 crisis led to somewhat of a resurgence in budget support among DAC members and significantly increased its use by multilateral agencies in 2020 at the start of the pandemic. However, its use declined among providers in 2021, with the exception of other official provider providers (Figure 8.14).

Figure 8.14. Budget support from DAC countries and multilateral agencies rose significantly amid the COVID-19 pandemic, followed by a sharp reduction in 2021

In 2021, budget support accounted for 14% of total ODA in the LDCs and 21% in the LMICs – much higher shares than in higher income countries, reinforcing its importance as a modality for the poorest countries (OECD, 2022[33]). Conditionalities attached to budget support are a key sticking point, with early research showing that too many conditions could decrease efficiency and impact (Rønsholt, 2014[82]). The International Monetary Fund has provided COVID-19 budget support with almost no conditionality; the World Bank has been criticised for conditioning emergency funding on as many as eight policy reforms, which may have lowered demand and slowed disbursement (Landers and Aboneaaj, 2021[85]). Further research on the impact of conditionalities in different contexts could help guide the use of this mechanism.

ODA spending is spread out across many countries and dominated by low value projects

Reducing fragmentation and project proliferation was a key motivation for the Busan Partnership for Effective Development Co-operation (OECD, 2011[86]), and narrowing the geographic concentration of spending is a frequent recommendation across DAC peer reviews to concentrate resources.

In 2020-21, the top five recipients of bilateral aid from all DAC donors (India, Bangladesh, Afghanistan, Indonesia and Ethiopia) together received 12% of gross bilateral ODA, with India, the largest recipient country, receiving 3%. While some DAC members have taken steps to improve their geographic concentration, for example the Netherlands (OECD, 2020[87]), these small proportions indicate that collectively, DAC members engage with many recipient countries spread over a wide geographic area. In 1960, DAC members, on average, provided aid to 15 recipient countries and territories. In 2021, the average was 97 (Figure 8.15).

Figure 8.15. DAC members have significantly increased their number of recipient countries over time

In 1960, DAC members on average provided aid to 15 recipient countries. In 2021, the average was 97.

DAC peer reviews since 2010 have noted that many bilateral organisations do not have a clear strategy to guide their choice of partner countries. While some DAC members operate on the basis of focus and/or priority countries, national interest, historical relationships and added value were often cited as drivers for their selections. Others have no stated priority countries or rely on criteria such as the quality of implementation partners to select partner countries. The increase in the number of bilateral development finance institutions may also drive an increase in the number of partner countries due to different criteria and focus for investments (Annex 8.D). In addition, peer reviews have noted that when many government departments are involved in distributing ODA, it is challenging to co-ordinate and maintain a consistent strategy. Peer reviews further note a large gap between indicated priority countries and actual allocations.

This proliferation has a significant impact on recipient countries. The share of recipient countries dealing with 60 or more agencies is growing and in 2019, there was a sharp increase in transactions, predominantly ODA. Additionally, top recipient countries have been receiving less of the share of DAC countries’ total ODA over time, whereas ODA unallocated by country – in the form of regional or global programmes – has risen considerably from 30.9% of the total in 2010 to 41.0% in 2021 (Figure 8.16). Another indicator of increasing fragmentation is the reduced size of projects and, consequently, greater number of low-value projects (World Bank, 2022[88]; Melonio, Rioux and Naudet, 2022[40]). Altogether, these trends suggest an increasingly fragmented landscape of ODA.

Figure 8.16. DAC members’ bilateral ODA has become increasingly fragmented across recipients over time

Support to and through country systems is decreasing and focus on the political economy needs to be stepped up

DAC members commit to uphold country ownership as the first principle of effective development co‑operation. Key tenets of country ownership include working with and through country systems and aligning with country priorities. Iceland, for example, has adopted a programme-based approach at the district level, placing the emphasis on aligning with national government efforts, local ownership, and the use of district and/or public financial management and results systems (OECD, 2021[75]). Support to country strategies and systems are also methods of co-ordination and opportunities to enhance the collective impact and avoid duplication. While some DAC members have country strategic frameworks (Denmark) (OECD, 2021[89]) or multiannual bilateral partnership frameworks (Spain) (OECD, 2022[90]), numerous peer reviews have noted the lack of individualised country strategies; lack of an overarching strategy encompassing development and diplomatic activity in a country; failure to base investment plans on partner country strategies; or a multitude of small interventions and poor predictability.

Lack of strategic planning for country engagement has correlated with a falling commitment to align with and use country systems, including national development plans, results frameworks, statistics and monitoring systems (OECD/UNDP, 2019[91]). Use of country procurement systems is also low though strengthened comparative tools for assessment can support reforms and improvements (Box 8.4).

Box 8.4. Procurement systems in developing countries face common challenges but can be strengthened

Public procurement is essential to implement any public policy and to achieve the Sustainable Development Goals. Since its creation by the OECD and the World Bank in 2003, the Methodology for Assessing Procurement Systems (MAPS) has been the internationally recognised tool to diagnose public procurement systems, plan reforms and initiate improvement.

Over 50 assessments using MAPS have either been completed or are currently underway in a variety of countries and territories. Assessments are typically conducted as some form of collaboration between countries and international development partners. Countries may apply the core MAPS framework as well as supplementary modules on e-procurement, professionalisation and sustainable public procurement as a first step in designing an evidence-based action plan to improve their procurement system.

Assessments shed light on common challenges including:

lack of active participation from the private sector and civil society in public procurement policy making
lack of access in a timely manner to procurement data including both aggregated quantitative data and detailed contract records
a substantial gap between the sophistication of the legal framework and what is done in practice.

Assessments also highlight recurring enablers for change, such as:

high-level political prioritisation of public procurement
broad coalitions for policy making that engage both internal (subnational and local) and external (private sector and civil society) stakeholders.

Each MAPS assessment is embedded in the country context, pinpointing specific weaknesses to be addressed and strengths to build on. This allows for MAPS to be used to develop reforms tailored to the country in question. A MAPS assessment in Lebanon, for example, was used as the foundation for new national public procurement legislation. In Norway, it was used for a strategic action plan to increase the sustainability of public procurement through a specific policy initiative for each weakness identified.

In addition, MAPS assessments reveal the new frontiers of public procurement challenges:

Professionalisation that goes beyond capacity building and establishes an attractive career path for public buyers. The challenge for countries here is often identifying the right people and achieving strong institutional support.
Sustainable public procurement in social, environmental and economic terms. The challenge for countries here is often a lack of integration between the three dimensions and a lack of shared international metrics and standards for setting goals and measuring progress.

In general, overcoming challenges requires moving procurement from being exclusively an operational, reactive consideration to also being a strategic, proactive one.

Source: Contributed by Nicolas Penagos and Jeppe Groot, Directorate for Public Governance, OECD. More information is available in OECD (2022[92]), “MAPS Initiative: What is MAPS?”,www.mapsinitiative.org.

Falling engagement with country systems may also reflect the emergence of new development co‑operation providers. The practice of setting targets for development co-operation providers through mutual accountability mechanisms was found to be less prevalent for new entrants than for more traditional development co-operation providers (OECD/UNDP, 2019[91]). In light of this, using country systems may be seen by traditional development co-operation providers as overly burdensome, unfair or counter to domestic national interests.

This poor use of country systems may also be connected to the prevalence and growth of autocratic regimes in ODA-eligible countries (from 68 to 75 from 2010 to 2019), though a quantitative study on ODA allocations has found that purpose codes, channels and instruments do not seem to be tailored to different regime types (OECD, 2022[93]). Moreover, nearly half of ODA for COVID-19 response was channelled through recipient governments (OECD, 2022[33]). Some have suggested that the choice to “engage” or “bypass” partner country governments is based on the ideology and incentives of development co-operation provider administrations and institutions rather than a needs-based analysis (Dietrich, 2021[94]). The practice of taking similar approaches to all or groups of recipient countries, whether based on provider ideology or another driver, has been highlighted as a key barrier to progress (Dercon, 2022[44]). Peer reviews frequently advise placing a greater emphasis on leveraging the contextual knowledge of local staff to develop country plans with appropriate resources.

A key enabler for country offices to provide more strategic direction is having a clear sense of risk appetite and management. While some members have a comprehensive risk management system, including context analysis and assessment of partner capacity as well as mitigation measures, others rely on less developed frameworks with, for example, a focus on risk avoidance or a narrower focus only on fiduciary risk. Peer reviews of many members found that their risk management was overly centralised, leading to delays and undermining their ability to react to changing situations. New or updated strategies can offer opportunities to significantly increase transparency for partners in country, both within and outside members’ administrations, and provide frameworks that could enable more decision making at country office or subnational level.

Untying ODA contributes to value for money and country ownership, but the urgency needed to overcome long-standing barriers is lacking

The premise of untying aid (i.e. removing any conditions that aid be used to procure goods or services from the provider of aid) is that it provides value for money and contributes to the goal of country ownership. By 2020, ODA covered by the DAC Recommendation on Untying Official Development Assistance represented 20% of all bilateral ODA,3 and 91.5% of this ODA was reported as untied (OECD, 2022[95]). A number of ODA categories – technical co-operation, food aid and ODA to non-governmental organisations unrelated to procurement-related activities – are excluded from the Recommendation (OECD, 2018[96]). Figure 8.17 illustrates the uneven progress across DAC members.

By 2020, ODA covered by the DAC Recommendation on Untying Official Development Assistance represented 20% of all bilateral ODA.

Figure 8.17. DAC members have made uneven progress towards the target to untie official development assistance

Several issues have been consistently cited as impeding further progress on untying aid:

While suppliers from developing countries and territories covered by the Recommendation were awarded 44% of the total number of contracts, these contracts represented only 13% of the total value of contracts.

The failure of other providers to untie aid is a disincentive to others. While not all official providers are transparent about the tying status of their activities (Wood et al., 2011[97]), there are suggestions that the uneven performance on meeting the Recommendation acts as a disincentive to others to either catch up or continue progress. China and India, themselves now providers of aid, have consistently won the most contracts since 2011 (OECD, 2022[95]). The two countries’ success in winning contracts, coupled with high levels of tying their own aid, may lead to so-called fair competition concerns.
De facto tied aid and reporting burdens. While aid may be legally untied – that is, legal and regulatory barriers to open competition for aid-funded procurement are removed – it may remain closed to competition through means other than legal or regulatory barriers. There are ongoing discussions around ways to combat such de facto tied aid. Most DAC members display high levels of ex post reporting after a contract has been agreed; ex ante reporting remains weak (OECD, 2021[98]). During peer reviews, DAC members have identified administrative burdens, limited resources and the potential of duplication with national reporting systems as barriers to reporting.
Barriers to entry for developing country suppliers. A consistent theme through various iterations of initiatives is that untying should aim to support local procurement and increase local purchases. A recent OECD (2022[95]) review found that about half (54%) of the value of contracts awarded under the Recommendation in 2019-20 went to suppliers in the development co-operation provider country and that while suppliers from developing countries and territories covered by the Recommendation were awarded 44% of the total number of contracts, these contracts represented only 13% of the total value of the contracts. The overall low value of contracts won by suppliers from developing countries highlights barriers to entry such as the contract size and complexity, suppliers’ lack of access to information on contract opportunities, and their inability to meet development co-operation provider requirements (OECD, 2021[98]). Some DAC members have adopted strategies such as set-asides; the UK government (HM Treasury, 2021[99]) focuses on early market engagement; and USAID (2022[100]) has simplified application procedures. Despite such efforts, barriers to entry persist.

Making the Recommendation more inclusive

In addition to calls for progress on implementing the Recommendation as it stands, there have also been calls to expand the coverage of the Recommendation as a means of pursuing the dual goals of value for money and country ownership across a more inclusive group of partner countries (Meeks and Meja, 2018[101]). Successive updates to the Recommendation since its adoption in 2001, including the last update in 2018, have expanded its coverage to the LDCs, countries under the Highly Indebted Poor Countries Initiative, the OLICs, and territories and countries that are only eligible for support through the World Bank’s International Development Association.

The Recommendation currently covers 66 ODA-eligible countries (Table 8.6). However, 41.2% of all bilateral ODA in 2020 went to 76 countries that are not covered by the Recommendation. Further widening the boundaries of the Recommendation would thus have an impact on a large proportion of bilateral ODA. Belgium, Canada, Finland, France, Ireland, Luxembourg, the Netherlands, Norway, Switzerland and the United Kingdom already untie all of their aid to all recipient countries.

	ODA-eligible countries covered	% bilateral ODA received, 2020	ODA-eligible countries not covered	% bilateral ODA received, 2020
LDCs	46 (100%)	25.8%	0
OLICs	2 (100%)	0.37%	0
LMICs	13 (34%)	4.64%	25 (66%)	26.6%
UMICs	5 (9%)	0.23%	51 (91%)	14.6%

Notes: ODA: official development assistance; LDC: least developed country; OLIC: other low-income country; LMIC: lower middle-income country; UMIC: upper middle-income country. The percentages of bilateral ODA refer to ODA categories that are covered under the DAC Recommendation on Untying Official Development Assistance. The table does not show the percentage of bilateral ODA that is not allocable by country.

Source: OECD (2022[1]), Creditor Reporting System (database), https://stats.oecd.org/index.aspx?DataSetCode=CRS1.

Taking policy coherence to the next level

Alongside commitments and good practices relating directly to ODA budgeting, distribution and mechanisms, DAC members have committed to strengthen the enabling environment through policy coherence. If implemented, these commitments can significantly increase (or at least avoid undermining) the impact of ODA.

Policy coherence implies active co-ordination of policies across administrations and taking into account any intended and unintended consequences of decisions, both domestically and internationally. Its potential to contribute to sustainable development was recognised in SDG target 17.14 and the 2019 OECD Recommendation of the Council on Policy Coherence for Sustainable Development, which followed an earlier recommendation adopted in 2010 (OECD, 2019[102]). Development co-operation providers face barriers on each of the prerequisites for effective policy coherence for sustainable development.

Identifying the focus of coherence efforts

Policy coherence for development originated as part of the aid effectiveness agenda and focused on identifying the transboundary impacts of domestic policies on developing countries. With the advent of the SDGs, policy coherence for sustainable development (PCSD) became the dominant framework, raising awareness that countries’ push to implement the SDGs at home sometimes comes at the expense of dedicated attention to partner-friendly policies (OECD/EC-JRC, 2021[103]). Some DAC members have taken steps to develop clear strategies and action plans that aim to achieve coherence – Italy, Luxembourg and the Netherlands, for instance, have all explicitly prioritised coherence in government strategies or legislation (OECD, 2022[104]). However, conflicts of interest between sectors and between national and global development objectives have been found to be key obstacles in coherence efforts (Fafo Research Foundation and Peace Research Institute Oslo, 2018[105]; Fellesson and Román, 2016[106]).

Against this backdrop, it is particularly concerning that peer reviews frequently note a lack of strategic vision and objectives to guide government institutions on PCSD and that the focus in PCSD remains on development co-operation, trade and foreign policy without taking adequate account of domestic policies such as the environment, business oversight, defence policy and remittance costs.

Designing arbitration mechanisms and understanding policy sets

Mechanisms are needed to support debate and dialogue to generate win-win policy options, if possible, and adjudicate trade-offs (Mackie, 2020[107]). Line ministries other than those directly responsible for development need to have clear responsibility for their impact on global sustainable development (OECD, 2022[104]). This is the case in Sweden, for example, where all ministries are required to develop action plans on their contributions to the SDGs; recent evaluations in the EU and Norway also advised similar all‑of-government engagement (OECD, 2022[104]). Honing in on policy areas relevant for each DAC country can be a helpful first step towards a wider application of policy coherence, as illustrated by Switzerland’s efforts to return assets stolen by politically exposed persons to their country of origin (OECD, 2021[108]) or the steps the United Kingdom has taken against illicit financial flows at home (OECD, 2021[109]). However, some DAC members have been found to lack functional mechanisms, while others have mechanisms that are not utilised or resourced to reach their fullest potential. In addition, identifying current relevant policy issues for both ODA providers and different recipient countries is a substantial co-ordination task. Advances are being made in highlighting and categorising various examples of coherence challenges that could be further exploited (European Commission, 2021[110]).

Measurement approaches are yet to mature and their outcomes to be embedded in decision making

Measuring levels and impacts of policy coherence is challenging, both conceptually and due to data gaps. Quantifying the positive and negative impacts of coherence efforts, or the lack of such efforts, is complicated by numerous variables, among them the strength of the connection between countries in relation to different policy issues, levels of vulnerability and sources of resilience (OECD/EC-JRC, 2021[103]). A number of quantitative measurement approaches are being tested but are still in the early phases (German Institute of Development and Sustainability, 2022[111]; UN, 2017[112]; Parlamento 2030, 2022[113]; Center for Global Development, 2021[114]). Finland and Switzerland, for example, have developed monitoring indicators on global responsibility and policy coherence as part of their national SDG reporting (OECD, 2022[104]). The most developed attempts to model transboundary impacts of policies include the MAGNET model and the OECD ENV-Linkages model,4 which allow for quantification of the positive and negative impacts of particular policy choices.

Combinations of challenges across measurement, institutional mechanisms, and vision and leadership hamper PCSD efforts, but appropriate solutions in country contexts can underpin progress (Box 8.5).

Box 8.5. Challenges and opportunities for policy coherence for sustainable development

Obstacles to policy coherence for sustainable development implementation

The 2022 Survey on Institutional Capacities and Tools to enhance policy coherence for sustainable development (PCSD) was an opportunity to consult member countries on the obstacles they face in implementing the OECD Recommendation of the Council on Policy Coherence for Sustainable Development. They reported three main obstacles across the three pillars of the Recommendation (Figure 8.18).

Figure 8.18. Obstacles to implementing policy coherence for sustainable development, by level of importance

These obstacles are in addition to the common challenges of using qualitative approaches to assess, monitor and evaluate the impacts of policies on sustainable development, particularly transboundary impacts. Overall, the picture of PCSD implementation is one of strength in commitment and leadership for PCSD but limited at the level of capacities and tools for integrating, monitoring and assessing sustainable development initiatives.

Country projects and lessons for policy coherence for sustainable development implementation

The OECD is focusing on enhancing impactful implementation across the eight guiding principles of the PCSD Recommendation and its three pillars. Drawing lessons from recent country projects, concrete steps to address common obstacles are being identified.

Pillar 1: Commitment, vision and leadership

Italy’s recent National Action Plan for Policy Coherence for Sustainable Development brings together the institutional mechanisms, evaluation frameworks and coherence tools needed to integrate sustainable development into government policy making. Importantly, the plan includes targets and measurable processes for each action to help track progress. These support the effective operationalisation of implementing the Sustainable Development Goals (SDGs) and set out an incremental path to mainstream sustainability as the standard for decision making.

Pillar 2: Institutional mechanisms for co-ordination

Poland’s central government will soon benefit from a capacity-building programme developed by the OECD that aims to strengthen civil servants’ skills to implement the SDGs in an integrated and coherent manner. The programme responds to identified challenges around lack of knowledge about the 2030 Agenda, insufficient communication across the government, and limited insight into the information and data resources that exist on sustainable development, among others. An online knowledge-sharing platform, where civil servants can find information that corresponds to their area of expertise and level of seniority, complements the programme.

Pillar 3: Policy impacts

Luxembourg’s sustainability check tool is a self-assessment tool that ministries and public administrations will use in conjunction with each legislative proposal to assess its contributions to the national sustainable development priorities spelt out in the National Plan for Sustainable Development.

This will ensure that the long-term impacts of draft laws and regulations on long-term sustainability goals are systematically taken into account and reported and that necessary trade-offs are made when complex policies are analysed. The sustainability check tool also provides a mechanism through which relevant departments can analyse and negotiate coherence issues as they arise.

Source: Contributed by Ernesto Soria Morales and Carina Lindberg, Directorate for Public Governance, OECD.

Conclusion

In the decades since ODA began, the development co-operation community has utilised commitments and the sharing and implementation of good practices as mechanisms to keep pace with changes among both providers and recipients as well as in the wider global landscape. The unprecedented shocks of recent years (the COVID-19 crisis and the impacts of Russia’s war of aggression against Ukraine) and ongoing humanitarian and climate crises hamper systematic implementation. At the same time, they underscore the importance of maximising the value, impact and quality of ODA. This moment of crisis has opened three levels of opportunity to maximise ODA:

1. Capitalise on crisis response. The pandemic, in particular, triggered some favourable changes in spending, including increased budget support and a softening of lending conditions to the LDCs. A window of opportunity opened to embed these changes and also question other approaches that are less favourable, such as increased earmarking to the multilateral system and a preference for humanitarian assistance over crisis prevention. While 2021 data show that the use of many of these mechanisms was not sustained, their profile has been raised and further attention could be paid to gathering evidence on their utility in crisis response as well as over the longer term.

2. Tackle long-standing issues. Fragmentation, limited use of country systems and poor allocation according to need are among the issues that pre-date recent crises. The strain that these place on developing countries is getting more attention. As development co-operation providers come under increased budgetary pressures, utilising the community’s suite of commitments and good practices can provide helpful logics for prioritising allocations and help improve efficiency and reduce waste.

3. Implement together to uncover gaps. In the process of implementation, development co‑operation providers will be confronted with complex issues and tensions, for example between spending directly in developing countries and spending on global public goods. The only way to calibrate limited supply to varied demand will be to work through these challenges together with a view to maximising both individual and collective impact – coherently within individual administrations and across providers and with the full engagement of developing countries. Such a process would also likely highlight where new commitments could be helpful or identify topics and approaches that may require more systematic sharing of good practice.

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[70] UN (2022), Multidimensional Vulnerability Index, United Nations Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States, New York, NY, https://www.un.org/ohrlls/mvi (accessed on 26 September 2022).

[112] UN (2017), Integrated Approaches for Sustainable Development Goals Planning: The Case of Goal 6 on Water and Sanitation, United Nations Economic and Social Commission for Asia and the Pacific, Bangkok, https://www.unescap.org/publications/integrated-approaches-sustainable-development-goals-planning-case-goal-6-water-and (accessed on 6 October 2022).

[25] UN (2015), Addis Ababa Action Agenda of the Third International Conference on Financing for Development, United Nations, New York, NY, https://sustainabledevelopment.un.org/content/documents/2051AAAA_Outcome.pdf.

[24] UN (1970), International Development Strategy for the Second United Nations Development Decade, A/8124 and Add. 1, United Nations General Assembly, New York, NY, http://www.worldlii.org/int/other/UNGA/1970/7.pdf.

[17] UNCTAD (2021), Embracing a New Statistical Framework for the Measurement of Illicit Financial Flows, Policy Brief No. 87, United Nations Conference on Trade and Development, Geneva, https://unctad.org/system/files/official-document/presspb2021d5_en.pdf.

[68] UNDP-OPHI (2022), Global Multidimensional Poverty Index 2022, United Nations Human Development Report Office and Oxford Poverty and Human Development Initiative, https://ophi.org.uk/global-mpi-2022/.

[77] UNGA Economic and Social Council (2019), Funding Compact: Report of the Secretary-General – Addendum, United Nations, New York, NY, https://www.un.org/ecosoc/sites/www.un.org.ecosoc/files/files/en/qcpr/SGR2019-Add%201%20-%20Funding%20Compact%20-%2018%20April%202019.pdf.

[100] USAID (2022), New Partnerships Initiative, United States Agency for International Development, Washington, DC, https://www.usaid.gov/npi (accessed on 2 December 2022).

[97] Wood, B. et al. (2011), The Evaluation of the Paris Declaration: Phase 2 Final Report, Dannish Institute for International Studies, Cophenhagen, https://www.oecd.org/derec/dacnetwork/48152078.pdf.

[27] Wood, T. (2022), “Attention Labor: Australians don’t want aid cut”, DevPolicy Blog, https://devpolicy.org/australians-dont-want-aid-cut-20220808/?utm_source=rss&utm_medium=rss&utm_campaign=australians-dont-want-aid-cut-20220808 (accessed on 18 October 2022).

[67] World Bank (2023), Poverty and Inequality Platform (database), World Bank, Washington D.C., https://pip.worldbank.org/home.

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[14] World Bank (2022), International Debt Report 2022: Updated International Debt Statistics, World Bank, Washington, DC, https://openknowledge.worldbank.org/bitstream/handle/10986/38045/9781464819025.pdf?sequence=5&isAllowed=y (accessed on 12 December 2022).

[12] World Bank (2022), “Net ODA received (% of central government expense)”, https://data.worldbank.org/indicator/DT.ODA.ODAT.XP.ZS.

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[15] World Bank (2022), “Total debt service (% of GNI)”, https://data.worldbank.org/indicator/DT.TDS.DECT.GN.ZS.

[88] World Bank (2022), Understanding Trends in Proliferation and Fragmentation for Aid Effectiveness During Crises, World Bank, Washington, DC, https://thedocs.worldbank.org/en/doc/ef73fb3d1d33e3bf0e2c23bdf49b4907-0060012022/original/aid-proliferation-7-19-2022.pdf.

Annex 8.A. Methodological note

Methodology for identifying challenges to maximising official development assistance

This chapter relied on a broad range of source materials and data to identify:

the commitments and good practices that are relevant to maximising official development assistance (ODA) and that Development Assistance Committee (DAC) members struggle to make progress on
the key barriers to progress for each of those commitments and practices
examples of progress.

These include statements made at DAC High-Level Meetings and Senior-Level Meetings starting from 2012 (Annex 8.B); syntheses of DAC peer reviews since 2012, including reviews published in the Development Co-operation Report 2014: Mobilising Resources for Sustainable Development (OECD, 2014[115]); and internal tracking of peer reviews for the years 2012-20, key impressions documents, and an overview of recommendations that highlight areas of challenge over time and across members. The Development Co-operation TIPS – Tools, Insights, Practices platform provided examples of good practice among DAC members. Sources representing the views of other stakeholders, notably partner countries and those relying on bilateral funding to carry out their work (e.g. the Global Partnership for Effective Development Co-operation and the United Nations Development Cooperation Forum) were also consulted, and secondary material is cited as appropriate. At least one peer review of each DAC member was included in the analysis.

The evidence used in this chapter is not exhaustive and where countries are identified by name, the text refers to evidence as it appeared in peer review documents. However, it should be noted that circumstances may have changed since a peer review, as each country is reviewed on average once every six years. Additionally, where a country is mentioned, it is to illustrate a general trend and should not be read as an assessment of individual DAC members’ current performance.

The focus on challenges is not intended to discount or occlude the positive progress of countries individually or collectively in relation to particular aspects of the development co-operation portfolio. Rather, this focus is intended to provide practical input for discussion and debate on how to move forward on issues that have proven perennially difficult to resolve.

Methodology for processing and presentation of statistics

All statistics on official and private flows are sourced from the OECD’s online International Development Statistics database, last updated on 20 December 2022. Estimates are available up to the year 2021. Unless otherwise stated, and except for the analysis of a single year, all financial amounts are deflated to constant 2020 prices, using OECD-DAC deflators and exchange rates, to enable comparisons over time. Further methodological notes on the different types, modalities and thematic areas of ODA and other resource flows can be found in the latest Development Co-operation Report profiles.

Annex 8.B. Synthesis of DAC statements on challenges to meeting commitments

A review of official summaries of High-Level Meetings (HLMs) and Senior-Level Meetings (SLMs) since 2012 indicates the challenge of upholding and/or delivering on Development Assistance Committee (DAC) recommendations while also adapting to new demands and pressures in the context of budgetary and other constraints. Issues that emerge consistently as a priority in the discussions are policy coherence for sustainable development; maximising support to countries most in need, including least developed countries (LDCs) (United Nations target) and other countries most in need; protecting the integrity of official development assistance (ODA) (including aid untying) while modernising it to meet new challenges; delivering on the Effectiveness Principles such as country ownership, long-term and predictable investments in system strengthening, and mutual accountability; learning lessons from research, evidence and evaluations; finding appropriate modalities to invest in global public goods; delivering on commitments to localisation (as per the Grand Bargain and, more recently, the DAC civil society organisation recommendation); and partnerships with the private sector and more inclusive dialogue with developing countries and other providers.

For example:

The 2012 HLM focused on establishing a successor framework to the Sustainable Development Goals; the establishment of the Global Partnership for Effective Development Co‑operation (GPEDC); accounting for all sources of development financing and reporting of ODA loans; DAC enlargement; and a process to modernise ODA. The HLM also agreed to create the Total Official Support for Sustainable Development, or TOSSD.
The 2014 SLM focused on transparency and the traceability of new sources of financing for developing countries; the Busan commitments not being met; development finance targeting countries the most in need; TOSSD development; weak engagement from capitals around political processes in conflict settings; and private sector engagement.
The 2014 HLM prepared for the post-2015 agenda and discussed modernising the statistical system around ODA; public and private resource mobilisation; a recommitment to the 0.7% ODA/gross national income target; reversing trends of declining ODA to LDCs; transparency; and dialogue with developing countries.
The 2015 SLM reaffirmed commitments to financing for countries most in need and discussed further work required on effectiveness, such as fragmentation, alignment, strengthening the quality of country systems; improving statistical capacity in developing countries; and a focus on results and gender.
The 2016 HLM agreed to adapt the DAC statistical systems to the Addis Ababa Action Agenda and the 2030 Agenda; positioned ODA as a key financing flow and catalyst for other sources of finance; discussed a focus on the private sector and blended finance, multiple refugee crises and instances of forced displacement; further committed to the Effectiveness Principles; and reviewed proposals needed to enhance the representativeness of the DAC and maximise its relevance and impact.
The 2016 SLM advanced discussions on ODA eligibility of development finance institutions and other private sector instrument vehicles; acknowledged the importance of small island developing states as a grouping of countries most in need; discussed finance mobilised in support of the Rio Convention, reporting of in-development co-operation provider refugee costs and the GPEDC modernising its future role; introduced a high-level panel (A New DAC in a Changing World); and agreed on the need to raise the political impact of the DAC’s work.
The 2017 High-Level Panel report on the DAC recommended that the DAC:
- change its mandate to promote development co-operation in support of a new consensus development agenda
- be more inclusive of other development partners to increase effectiveness
- reform its working methods.
The 2017 Chair’s proposal for DAC reform in light of the High-Level Panel report and OECD evaluation concluded that while efficiency had improved, relevance and effectiveness had decreased. The proposal laid out six strategic priorities for DAC reform.
The 2017 HLM featured the DAC championing of the 2030 Agenda and the Addis Abba Action Agenda in particular; raised the issue of policy coherence for sustainable development (PCSD); communicated six strategic priorities for DAC reform; reaffirmed commitments to ODA targets; updated ODA rules on peace and security; and discussed responses to forced displacement, support to countries in transition, mobilising private finance and an update of the GPEDC monitoring framework.
The 2017 SLM welcomed the Chair’s proposal for DAC reform on behalf of members.
The 2020 HLM focused on the impact of COVID-19 and the need to champion the 2030 Agenda and tackle inequalities; highlighted the importance of meeting ODA targets to fund immediate response; discussed the need to classify all development financing flows, including debt treatment as ODA; committed to reporting on financing for climate and the environment before COP26; reaffirmed commitment to the Busan Principles and to building partnerships; underlined the humanitarian-development-peace nexus; and highlighted sexual exploitation and abuse and sexual harassment reporting and accountability mechanisms.
The 2022 SLM reviewed the ongoing COVID-19 response and need for partnerships; discussed the interaction of development co-operation and the political landscape and working with emerging development co-operation providers and civil society organisations; focused on effectiveness, flexibility, prioritisation, localisation, knowledge sharing, peer learning and PCSD; and highlighted delivery on the DAC Declaration on Climate, Environment and Biodiversity and financing for sustainable development.

Annex 8.C. DAC members’ commitment and progress towards the United Nations official development assistance target of 0.7% of gross national income

DAC member	DAC member status on adoption of ODA/GNI target	ODA/GNI 2021	Average annual growth rate (2018-21)
Australia	No	0.22	-1.31%
Austria	0.7% by 2030	0.31	6.06%
Belgium	0.7% by 2030	0.46	2.75%
Canada	Increase every year until 2030	0.32	4.82%
Czech Republic	0.33% by 2030	0.13	0.00%
Denmark	0.7%	0.7	-0.93%
Finland	0.7% by 2030	0.47	9.52%
France	0.7% by 2025	0.52	6.96%
Germany	0.7% by 2030	0.74	7.01%
Greece	No	0.12	1.16%
Hungary	0.33% by 2030	0.29	11.99%
Iceland	0.7% by 2030	0.28	0.33%
Ireland	0.7% by 2030	0.31	0.03%
Italy	0.7% by 2030	0.28	5.09%
Japan	No	0.34	6.72%
Korea	Commitment to double volume compared to 2019 (previously: 0.3% by 2030)	0.16	4.92%
Luxembourg	1.0% by 2030	0.99	0.41%
Netherlands	0.7% by 2030	0.52	-5.57%
New Zealand	0.7% by 2030	0.28	0.18%
Norway	1.0%	0.93	0.38%
Poland	0.33% by 2030	0.15	2.38%
Portugal	0.7% by 2030	0.18	0.11%
Slovak Republic	0.33% by 2030	0.13	1.58%
Slovenia	0.33% by 2030	0.19	6.00%
Spain	0.7% by 2030 (Draft Bill 2022)	0.25	7.74%
Sweden	1.0%	0.91	-3.90%
Switzerland	Adopted 0.5% (0.7% international commitments by 2030)	0.51	5.15%
United Kingdom	0.7% ODA/GNI was mandated by the International Development Act, 2015 In 2021, the decision was taken to temporarily reduce the ODA budget to be equivalent to 0.5% of GNI until fiscal tests are met	0.5	-9.52%
United States	No	0.18	4.32%

Note: DAC: Development Assistance Committee; ODA: official development assistance; GNI: gross national income.

Sources: OECD (2022[33]), Development Co-operation Profiles, https://doi.org/10.1787/2dcf1367-en; HM Treasury (2021[99]), “Government sets out conditions for returning to 0.7% aid target”, https://www.gov.uk/government/news/government-sets-out-conditions-for-returning-to-07-aid-target; OECD (2012[116]), Development Co-operation Report 2012: Lessons in Linking Sustainability and Development, https://doi.org/10.1787/dcr-2012-en; Development Today (2022[117]), “Sweden drops 1% of GNI target, makes aid a tool of migration policy”, https://www.development-today.com/archive/dt-2022/dt-7--2022/sweden-drops-1-of-gni-target-makes-aid-a-tool-of-migration-policy; OECD (2022[118]), Review of the Development Co‑operation Policies and Programmes of Spain: A Snapshot of Spain’s Development Co-operation System, https://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DCD/DAC/AR(2021)4/6/FINAL&docLanguage=En#:~:text=The%20latest%20Foreign%20Policy%20Strategy,%2C%202021%5B2%5D); Spanish Ministry of Foreign Affairs, European Union and Cooperation (2022[119]), “Council of Ministers approves Cooperation Bill”, https://www.exteriores.gob.es/en/Comunicacion/NotasPrensa/Paginas/2022_NOTAS_P/20220531_NOTA048.aspx; SlovakAid (2018[120]), Medium-term Strategy For Development Cooperation of the Slovak Republic for 2019-2023, https://slovakaid.sk/wp-content/uploads/2021/01/strednodoba_strategia_rozvojovej_spoluprace_eng_2019-2023_644_stran_final.pdf; Chadwick (2022[36]), “Norway proposes cutting aid share to 46-year low”, https://www.devex.com/news/norway-proposes-cutting-aid-share-to-46-year-low-104158.

Annex 8.D. DAC members’ bilateral development finance institutions

DAC member	Development finance institution	Year of founding	Source of capital	Credit rating
Australia
Austria	OeEB	2008	Private with state mandate	AA+ (S&P)
Belgium	BIO	2001	Public
Canada	FinDev	2017	State-owned	AAA (S&P)
Czech Republic
Denmark	IFU	1967	Government-owned (public/private capital)
Finland	Finnfund	1980	Mixed ownership
France	AFD	1941	Public	AA (S&P)
France	Proparco (AFD)	1977	Public/private	AA (S&P)
Germany	KfW	1948	Public	AAA
Germany	DEG	1962	Public/private
Greece
Hungary
Iceland
Ireland
Italy	CDP	1850 (2015)	Public/private	BBB (S&P)
Italy	SIMEST	1990	Public/private	BBB (S&P)
Japan
Korea	Korea Eximbank/EDCF	1987	Public	AA-
Luxembourg
Netherlands	FMO	1970	Public/private	AAA (S&P)
New Zealand
Norway	Norfund	1997	Public capital
Poland
Portugal	SOFID	2007	Public/private
Slovak Republic
Slovenia
Spain	COFIDES			BBB (S&P)
Sweden	Swedfund	1979	Public	AAA (S&P)
Switzerland	SIFEM	2005	Public	AAA (S&P)
United Kingdom	BII	1948	Public
United States	DFC	2019	Public	AAA (Fitch)
European Union	EIB	1958	Public	AAA (S&P)

Source: Institutional websites of listed development finance institutions.

Notes

← 1. In 2021, the World Bank classified 46 countries as LDCs. The OECD classified 60 countries and territories as fragile contexts.

← 2. For a history of the ODA target, see also: https://www.oecd.org/dac/financing-sustainable-development/development-finance-standards/ODA-history-of-the-0-7-target.pdf.

← 3. Iterations of the DAC Recommendation on Untying Official Development Assistance were made in 2001, 2008 and 2018. The 2011 Busan Partnership for Effective Development Co-operation also includes commitments to improve reporting on untying. See: https://doi.org/10.1787/54de7baa-en.

← 4. Both models are described in detail at: https://doi.org/10.1787/862c0db7-en.

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