Development Co-operation Report 2023

Overview: Keeping development co-operation relevant and impactful amid daunting challenges

Abstract

Providing the right development support at the right time and in the right places has become more difficult for international development actors. Demands on development assistance budgets are growing and finance gaps are widening. These pressures have made development co-operation the subject of healthy debate and reflection. All development actors are called on to adapt their policies, strategies and partnerships in a spirit of global solidarity and burden sharing. This overview outlines challenges and opportunities that are emerging from this rethinking of the aid system. It proposes ideas for action to overcome roadblocks to delivering existing commitments; support locally led transformation in partner countries; modernise business models and financial management practices; and rebalance power relations and find common ground for partnerships.

Development co-operation under pressure to meet new demands amid crises

Since 2020, rolling, concurrent crises have been eroding development progress and putting the international development system under immense, and in some cases unprecedented, strain. Global turbulence – the COVID-19 pandemic, Russia’s war of aggression against Ukraine, growing awareness that the window for action on climate change is closing, and a shifting geopolitical landscape marked by increasing polarisation and competition – has also given rise to questioning and reflection about the capabilities and effectiveness of international development policy and practice. Not all of this is new. The development co-operation system is the product of near-constant evaluation and reassessment over the years. The search for common ground, norms and standards predates this time of immense need. But today’s crises and new demands only increase the incentives to maximise its potential.

Debates are crystalising around the need for a fundamental rethinking of the international development system

As illustrated by contributions to this landmark 60th edition of the Development Co-operation Report, debates are crystalising around the need for a fundamental rethinking of the international development system. There is fresh reflection on the mandates, drivers, capacity and coherence of its main actors and new urgency to the discussions about scaling up and optimising the allocation of its principal instrument, official development assistance (ODA)1, to reach goals (Calleja and Gavas, 2021[1]; Mélonio, Naudet and Rioux, 2022[2]; Kharas, 2021[3]; Klingebiel and Reid-Henry, 2022[4]). Contributions to this report reflect parallel calls for a systemic reckoning to address racism, colonial legacies, top-down decision making, power imbalances and neo-dependencies on foreign assistance (Omlo et al., 2022[5]; International Development Committee, 2022[6]; Peace Direct et al., 2021[7]). Contributors also emphasise the importance of developing country leadership, domestic accountability and responsibility for transformative policies, good governance and tackling corruption. Development Assistance Committee (DAC) members welcome and invite diverse views from partners2 and the broader international development community as to how to overcome policy, financial and delivery challenges and how to do so in a way that systematically includes a partner country perspective; connects rules, norms and debates to a wide group of stakeholders; and imbues strategies and plans with the commitment to values-based, coherent, inclusive and effective development co-operation focused on where needs are the greatest.

Aid budgets and capacity are under unprecedented pressure as progress falters on the 2030 Agenda

The United Nations (UN) 2030 Agenda for Sustainable Development and the Paris Agreement on climate change embody countries’ promises, to their citizens and to each other, to actively work towards a better future (UN, 2015[8]; 2015[9]). They were made with the understanding that tackling major systemic problems and the world’s political, economic, social and environmental crises requires co-operation. But achieving the vision and lofty goals is proving hard. Progress is uneven and new challenges are rapidly emerging that often overshadow or undermine the positive outcomes already achieved.

A staggering 90% of countries saw their Human Development Index value drop in 2021 (UNDP, 2022[10]). An estimated 100 million more people have fallen into extreme poverty as a result of COVID-19 (Gerszon Mahler et al., 2020[11]) and about 40 million more will follow due to the war in Ukraine (Mitchell, Hughes and Huckstep, 2022[12]). Unchecked, climate change and related extreme weather will drive 130 million people into extreme poverty by 2030 (World Bank, 2022[13]). Hunger and violent conflict are also on the upswing. These drive fragility, and in some developing regions such as West Africa and the Horn of Africa, they also divert resources away from development priorities to address internal conflict (see Chapter 2) (OECD, 2022[14]; UNDP, 2022[10]; World Bank, 2022[15]; IMF, 2022[16]; UN, 2022[17]). Some of the most vulnerable will find themselves at the intersection of two or more of these crises.

Crises are having a profound impact on ODA budgets and their focus and delivery. Quasi-continuous post‑disaster reconstruction and emergency repairs of climate-vulnerable infrastructure; increasing fragility, violent conflict and humanitarian disasters; and ever-expanding need are straining the availability of financing for other development goals. In her “In my view” article, Amina Mohammed stresses the urgency, noting that 94 countries, home to some 1.6 billion people, “are severely exposed to at least one dimension of the multifaceted crisis facing the world today and unable to cope with it.” As contributors to the report warn, achieving the Sustainable Development Goals (SDGs) in the remaining seven years to 2030 requires affordable financing for the developing world. But this is in short supply and competing demands for finance risk diverting ODA from its core mission. Aid budgets have become more volatile and stretched amid the crises (see Chapter 8), compromising investments in long-term development and climate transition. Poorly timed and communicated cutbacks, reallocations and programme closures are also opening development co-operation actors to criticism and can undermine trust (see Chapter 2).

Competing demands for finance risk diverting ODA from its core mission.

Had the DAC collectively met the 0.7% target in 2021, total ODA would have been USD 389 billion – more than double the actual amount of USD 185.9 billion, which represented 0.33% of collective gross national income (GNI) (see Chapter 8). Finance trends outside the DAC are also cause for concern. Other providers reporting data to the OECD have also cut their development co-operation budgets (OECD, 2022[18]). Long‑term trends in aggregate development assistance show that fewer resources are being spent in developing countries (see Chapter 8). Country programmable aid in particular has decreased, while an increasing proportion of ODA budgets is allocated to refugee costs incurred in donor countries, humanitarian financing and spending on global public goods (GPGs). Most of the growth in ODA spending in 2020-21 was related to climate change, refugee costs, food security and infectious diseases, reflecting the response to the COVID-19 pandemic. When allocations shift to immediate crisis response, the quality of development co-operation and the commitment to effectiveness can suffer (GPEDC, 2022[19]).

Wider trends – notably depressed global finances, geopolitical polarisation and accelerating climate deterioration – do not bode well for scaling up financing for development and investments to reverse the recent development losses (OECD, 2022[20]). In short, global needs are spiking at exactly the moment when it is most difficult to raise the resources to meet them. The OECD projects that global gross domestic product (GDP) in 2023 will be at least USD 2.8 trillion lower than was forecast in December 2021 (OECD, 2022[21]). Many least developed and low-income countries risk becoming all the more dependent on concessional grants and loans as fiscal revenues decline, the cost of debt rises and other sources of finance for development dry up (see Chapter 8) (OECD, 2022[20]).

To adequately implement their nationally determined contributions, countries in Africa require cumulative climate financing of up to USD 1.6 trillion between 2020 and 2030 – that is, an average of USD 128 billion annually (Gable et al., 2022[22]). Many developing countries are taking on ever-increasing levels of debt to mitigate and adapt to climate change as well as deal with loss and damage (see “In focus” 3). Accessing climate finance, whether through traditional development budgets or specific climate finance funds, is a major challenge. While climate funds have tried to streamline their processes, more needs to be done. Pacific Island countries, for example, continue to struggle to access finance because the reforms required to meet criteria stretch their already-thin capacities (see “In focus” 23) (Fouad et al., 2021[23]). Barbados’ Prime Minister Mia Mottley spoke for leaders of many developing countries that are burdened with debt to finance domestic adaptation and mitigation costs on top of costs of loss and damage when she said that the current architecture just does not and cannot work. She calls for innovative climate finance plans, as outlined in the Bridgetown Agenda (see Box 2.1 in Chapter 2).

The institutions established in the wake of World War II that underpin the current international order are under strain and scrutiny (Mélonio, Naudet and Rioux, 2022[2]; OECD, 2020[24]; 2019[25]). In a context of rival development models and rising competition for global influence, and access to markets and supply chains, contributors to the report ask how these tensions will affect commitments to promote human rights; sustainability; and the social, economic and environmental goals of the 2030 Agenda (see Chapter 2).

Delivering high-quality ODA for development progress requires solid political economy analysis, partner country ownership and leadership on national and local development, delivery of core commitments and good practices, and the application of lessons and evidence on what works – all of which play out differently in each of the 141 ODA-eligible countries. For example, broader ownership of development plans, a critical success factor (see Chapters 2 and 20 and “In focus” 22), may be less prevalent in autocratic countries, challenging donors to rethink their development strategies and allocations at a time when aid flows to these contexts are growing. The share of bilateral aid going to autocratic countries has grown from 64% in 2010 to 79% in 2019, and there was a 19-fold increase in humanitarian aid to closed autocracies over the ten-year period (OECD, 2022[26]).

Reflections on the aid system point to constraints and opportunities to better address shared global challenges

While the international development system has been fine-tuned and fortified over time, it is subject to new, evolving and complex demands today. The contributions in this report recognise constraints and opportunities to do development co-operation better. Though there is no consensus on how to get there, several common themes emerge from expert input to this report, including around issues of power, partnership, and the need for all sources of finance – not just ODA – to align and deliver for sustainable development and economic transformation.

One theme relates to the diverse demands on ODA to achieve multiple global agendas that range from stemming migration and fighting global health pandemics to securing GPGs more broadly. According to some estimates, ODA for objectives similar to GPGs has increased from 30% of average DAC members’ bilateral ODA over 2006-10 to about 57% in 2016-20 (see Chapter 8). Using ODA budgets to secure GPGs is not without challenges and controversy, however, in light of needs and unmet demand for ODA investments in national development goals and priorities and the imperative to maintain focus on poverty and inequality at local and global levels (see Chapters 3 and 4). Furthermore, while only certain countries are eligible for ODA under the current definition, support for GPGs calls for investments in advanced and non-ODA eligible countries. The international community needs to agree on clear financing rules, boundaries, sources and mechanisms for GPGs (including pandemic preparedness) beyond ODA. According to Abdoulaye Mar Dieye in his “In my view” article, “The real instrumental value of ODA lies in its ability to contribute to mitigating risks created by global trends and in investing in global goods and global commons.” Analysis of the opportunities and trade-offs of using ODA to secure GPGs compared to other official and private international flows will need to be an important part of GPG norm setting and architecture3 (OECD, 2019[25]).

A broader, critical and systemic theme is that development co-operation actors must take a hard look at whether their objectives are relevant or achievable in some contexts and whether ODA is entrenching dysfunctional institutions and habits.‎

A broader, critical and systemic theme is that development co-operation actors must take a hard look at whether their objectives are relevant or achievable in some contexts and whether ODA is entrenching dysfunctional institutions and habits.‎ Based on his analysis of 315 evaluations of aid effectiveness in Afghanistan, Mali and South Sudan, Zürcher urges providers to consider the opportunity costs of reflexively investing where needs seem to be greatest, especially in settings such as fragile contexts that are beset by institutional and security weakness (see “In focus” 10). He warns that “once the evidence shows that the probability of success in these sectors is extremely low, then aid resources must be allocated to sectors where there is a reasonable probability for success”. Likewise, Adeyi argues that support for basic health services and inputs, which should be the primary responsibility of each individual country, creates dependencies that undermine domestic government accountability for health and perpetuates fragile health systems (see “In focus” 6). He suggests “letting go of the status quo, which is familiar and comfortable but dysfunctional”, and making individual countries accountable and responsible for basic health and inputs.

Ways forward for keeping development co-operation relevant and impactful

Over the years, at successive summits and conferences, the global community has developed and reaffirmed principles of development co-operation that recognise its core business of supporting developing countries in their efforts to improve the lives of their citizens, leaving no one behind. These commitments and pledges are further based on recognition that nations and societies hold the keys to their own progress. While it can only contribute in this regard, development co-operation must go beyond the injunction to do no harm and contribute effectively (OECD, 2019[25]).

A clear imperative, embedded in global agreements, is to deliver quality development co-operation. Participants at the 2022 Summit on Effective Development Co-operation reaffirmed the commitment to the Effectiveness Principles – namely country ownership, a focus on results, inclusive partnerships, and transparency and mutual accountability (GPEDC, 2022[19]). The summit also reasserted the relevance of development co-operation and international partnerships, with a renewed emphasis on country capacity and global-scale challenges (see also Chapter 20 and “In focus” 22).

At the same time, development co-operation is not a one-way relationship. It creates mutual benefits for countries and citizens. While these benefits are often cast in terms of foreign policy and economic interests, they also extend to fundamental aspects of human well-being, such as health and peace. Arguing for new models of partnerships, Nardos Bekele-Thomas, the chief executive officer of the African Union Development Agency (NEPAD), makes this point in her “In my view” article: “There is a need for partnerships and collaborations that foster mutual benefits and inclusivity among different stakeholders at the local, national and international levels.” Domestically, the effective use of ODA budgets is subject to oversight by parliaments, the media and taxpayers, notably when there is an explicit political commitment to scale up aid when budgets are growing and during periods of austerity and broader government cutbacks. Over the period 2018-21, 24 DAC countries recorded positive growth in their ODA/GNI ratios (see Annex 8.C in Chapter 8).

Translating the spirit of global solidarity and responsibility, partnership and burden sharing into action is one of the great challenges in development co-operation. At the start of 2022, the DAC Chair took note of the growing urgency for international co-operation and solidarity in the face of daunting and multiple challenges. DAC members must support their partners to confront these challenges; she stated, “and we will do this best if we listen, learn from best practice, adapt our approaches and prioritise ruthlessly. We must continue to gather the data and evidence, to hold each other to account, and strive to improve both the quality and quantity of development co-operation” (OECD, 2022[27]). Indeed, reshaping the system is critical to meeting the DAC mandate of contributing to the implementation of the 2030 Agenda and to a future in which no country will depend on aid (OECD, 2017[28]).

Translating the spirit of global solidarity and responsibility, partnership, and burden sharing into action is one of the great challenges in development co-operation

Contributors to this report laud the established good practices and the potential of development co‑operation to support inclusive and sustainable development. Their ideas for action and greater impact include meeting existing commitments; supporting locally led transformation in partner countries; modernising business models and financial management practices; rebalancing power relations in international decision making; and finding common ground for partnerships.

Meeting finance commitments, unlocking progress

Development co-operation and finance are heavily scrutinised and constantly challenged, at home and abroad, to perform better. The suite of commitments and standards that has been built serve as helpful guideposts in an increasingly complex system, as they are powerful affirmations of governments’ intentions and values (see Chapter 8). Delivering on them helps cement the mutual trust and credibility that are essential to partnerships. But the global community has fallen short, and the intended beneficiaries and main stakeholders of co-operation are raising legitimate concerns that the widening gaps between promises and practices weaken trust with partner countries (see Chapter 2) (Mitchell and Birdsall, 2022[29]; UN, 2021[30]). These debates on making development co-operation relevant are a positive impetus to dialogue and reflection among aid providers on putting commitments fully into action.

Providers of development co-operation have signed on to numerous aid-financing targets and commitments – to allocate 0.7% of their GNI to ODA, to increase the share of ODA for least developed countries (LDCs) to 0.15-0.20% of GNI, to use partner country public finance and delivery systems, and to provide core support to multilateral organisations in line with the UN Funding Compact (see Chapter 8). They have also committed to ensure policy coherence for sustainable development. DAC peer reviews, a backbone of the analysis in this report, consistently highlight political, economic and systemic factors that get in the way of progress on financing targets, needs-based allocations and improved ODA quality. Meeting commitments to strengthen the enabling environment for aid through policy coherence can also significantly increase (or at least avoid undermining) the impact of ODA (see Chapter 8).

An overarching message in this report is that all international development actors need to close implementation gaps. While most DAC members are making progress on some commitments, collectively they are off track on several indicators, as summarised in Table 8.1 in Chapter 8. Translating commitments into timebound action plans is a useful exercise recommended by DAC peer reviews. More targeted implementation plans also foster greater realism and awareness among domestic stakeholders, including ministries of finance, and helps identify bottlenecks, trade-offs and what is needed to keep promises.

An overarching message in this report is that all international development actors need to close implementation gaps.

ODA is one of three major sources of external financing for developing countries alongside remittances and foreign direct investment. 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 (see Figure 8.2 in Chapter 8). However, performance against the 0.7% target has plateaued since 2005, with ODA at about 0.3% of collective DAC members’ GNI. While a few DAC members have been meeting the target for some time, the majority of DAC and other development co-operation providers have never done so.

Likewise, the ODA/GNI target of 0.15-0.20% for LDCs has not been achieved at an aggregate level. Nor have new incentives in ODA accounting rules for more lending on highly concessional terms to the LDCs produced the intended result. From 2015 to 2019, conditions for ODA lending to the LDCs actually hardened, with average grant elements and maturity periods falling and interest rates rising.4 Noting the rising cost of borrowing and recent declines in grant and concessional resources from bilateral and multilateral financing, Prime Minister Sheikh Hasina of Bangladesh, in her “In my view” article, stresses that achieving the SDGs by 2030 will require affordable financing for the developing world. Other contributors also point to the looming crisis of unsustainable debt (see Amina Mohammed’s “In my view” article and Chapter 2).

Current efforts to use ODA to catalyse and mobilise financing for development from other sources, including blended finance, are also falling short. According to OECD-DAC international development statistics, just USD 4.5 billion of the USD 185.9 billion in total ODA flows from DAC members in 2021 was dedicated to development-oriented private sector instruments.5 Finding a permanent solution for measuring donor effort in private sector instruments has been a key challenge for DAC members (see Annex 8.B in Chapter 8). At the same time, private finance is not delivering at the scale envisioned in the Addis Ababa Action Agenda or in terms of SDG alignment (UN, 2015[31]; OECD, 2022[20]). Despite this overall disappointing performance, collaboration with the private sector can yield some innovations, for example, new insurance mechanisms to help manage elevated levels of risk (see Jagan Chapagain’s “In my view” article).

The consequences of the widening finance gap are especially stark when it comes to addressing climate crisis impacts. At present, both the quantity and quality of climate finance remain inadequate to cover climate mitigation and adaptation and the economic and social needs of climate-vulnerable communities and countries in the Global South. With a new commitment at the most recent climate conference to launch a loss and damage fund, the need for additional finance above and beyond development co-operation is increasing (see “In focus” 3), although a portion of existing climate-related development finance is already applicable to loss and damage (OECD, 2021[32]). In parallel, Global South countries are calling for greater transparency on climate finance and its relationship with development finance, further animating debate over how to measure and track such finance, including the commitment to new and additional funding.

With a new commitment at the most recent climate conference to launch a loss and damage fund, the need for additional finance above and beyond development co-operation is increasing.

International development budgets are the primary financing stream for advanced economies’ efforts to meet the United Nations Framework Convention on Climate Change’s annual commitment of USD 100 billion. Of the USD 83.3 billion in climate finance provided and mobilised by developed countries in 2020, USD 31.4 billion was bilateral public climate finance and USD 36.9 billion was multilateral public climate finance (OECD, 2022[33]). While it is impossible to calculate the exact proportion accounted for by ODA, on average, volumes of DAC ODA going to climate adaptation and climate mitigation increased in the period 2016-20 compared to the period 2011-15 (see Chapter 8).

DAC members have also committed to allocate more ODA to countries most in need and to leave no one behind (OECD, 2018[34]), and yet bilateral ODA has become more focused on middle-income countries. Peer reviews have found that issue-based ODA allocations (e.g. for climate mitigation or infrastructure) are partly driving this increase, and a recent OECD (2022[35]) report noted a similar trend for multilateral outflows. Targeting inequality has not been a key focus to date in ODA allocations. Nor do ODA allocations show a strong or consistent relationship to extreme or multidimensional poverty.

From 2010 to 2021, the volume of DAC members’ humanitarian aid grew by 109% and increased by 5 percentage points as a share of total gross ODA. But humanitarian financing has fallen short of rising needs. While UN appeals amounted to USD 51.7 billion in 2022, only 47.4% of this amount was funded (UN, 2022[36]). As noted by Degan Ali in her “In my view” article, many of the ambitions of the 2016 Grand Bargain also have not been fully realised. Among these is the commitment to target, as directly as possible, at least 25% of humanitarian funding to local and national responders (Inter-Agency Standing Committee, 2021[37]). Direct funding to local civil society organisations also remains particularly low, at 2.63%. Unpredictable funding flows pose a particular challenge to adequate planning and response, and better co-ordination is needed to align budget cycles, risk appetite and ways of working. Nonetheless, there are some positive trends. For example, some providers are shifting from short-term, project-based grants to multiannual financing and more empowering types of support, such as cash and voucher assistance (see Box 8.2 in Chapter 8).

Ideas for actions to deliver existing commitments and unlock progress can be found in Figure 1.

Figure 1. Deliver existing commitments and unlock progress

Support locally led transformation in partner countries

Contributors to this report emphasise the need for mutually beneficial and accountable international partnerships that respond to national development strategies, policy priorities and reform agendas. While self-reliance, self-help and country ownership have long been development co-operation principles, providers are now challenged to deliver on these ideals. In line with the country ownership principle, developing countries need to lead engagement with stakeholders and develop a long-term vision, with strategies embedded in government ministries and institutions independent of politics to minimise the risk of progress getting lost between political cycles (see Chapters 2 and 20). Dercon advises that where there is a “development bargain”, donors should provide budget and capacity-building support for local authorities such as central banks and regulatory authorities while bringing international capital directly into firms via development finance institutions (Dercon, 2022[38]).

Developing countries have consistently signalled that they prefer to receive expertise from a variety of actors and thanks to different development paradigms, pathways and geopolitical competition, they now have a wider choice of partners (see Chapter 18) (OECD, 2019[25]). AidData surveys of about 8 000 civil society and public and private sector leaders in the Global South suggest they continue to value DAC members’ support on governance and the rule of law – issues critical to long-term development (see Chapter 18). At the same time, developing countries are seeking to meet their needs and priorities through partnerships with the full range of OECD providers and Group of Twenty countries (e.g. Brazil, the People’s Republic of China, India, Indonesia and South Africa) as well as with other Global South countries.

In international meetings and debates, there is fresh momentum behind national and locally led development, which was a key theme at the 2022 Global Partnership for Effective Development Co‑operation Summit and outcome document (GPEDC, 2022[19]). Aligning donor funds with national development priorities can lead to more goal-oriented investments and create more equitable and longer term partnerships (Custer et al., 2021[39]). While national development plans may often reflect the interests of elites more than societal consensus, they can guide funders and also inspire them to identify and address the global causes of the challenges that developing countries face (see Chapter 20).

While national development plans may often reflect the interests of elites more than societal consensus, they can guide funders and also inspire them to identify and address the global causes of the challenges that developing countries face.

Contributions to the report underscore the benefits of adhering to country ownership principles. By paying attention to what their country partners say they want to achieve and what they need to make reforms happen, development co-operation providers increase the odds that their investments bear tangible fruit (see Chapter 18). Moreover, development co-operation providers seen as being aligned to national development strategies may gain a performance dividend as they tend to be considered more influential and helpful by leaders in low- and middle-income countries (Custer et al., 2021[39]).

There is a demand for development co-operation to focus on long-term sustainability, resilience, jobs and accountable institutions. Muzawazi and da Costa stress the need for co-operation to help address persistent continental challenges in Africa, particularly for industrialisation and economic competitiveness for job creation (see “In focus” 21). Development co-operation providers can support Africa’s industrialisation and productive transformation by helping address the continent’s infrastructure deficit and supporting regional agendas. In Chapter 2, Signé’s key message is that development strategies should also leverage the strengths of each developing country. “In doing so,” he argues, “development actors can provide actionable recommendations that are rooted in a country’s situation and politics rather than a laundry list of recommendations that may not be politically or financially viable and that are treated as prerequisites for development progress.” Local and agile partnerships with developing countries in the driving seat can respond to emerging dynamics (Silva, Bernardo and Mah, 2021[40]).

Locally led transformation also entails supporting regional development mechanisms and institutions. Contributions from NEPAD call for repurposing current developmental strategies and creating fit-for-purpose mechanisms to shore up Africa’s resilience to both regional and external shocks, citing the African Continental Free Trade Area agreement as a promising regional integration initiative that responds to persistent challenges and polarisation in the international trading system and the political backlash against globalisation in some parts of the world. OECD countries are called on to play a stronger role in supporting the continent in its demand for debt relief and promote dialogue between credit rating agencies and the African public sector on credit rating indicators.

Locally led transformation also entails supporting regional development mechanisms and institutions.

Follow through on the long-established principle and commitment of locally led development

Working with local actors offers a range of benefits. According to Jagan Chapagain in his “In my view” article, localising humanitarian assistance promotes greater inclusion and equity, more trust, faster and more timely responses, more flexibility, broader access, and long-term sustainability in operations and programming. Local and community actors deliver programming that is 32% more cost-efficient than that of international intermediaries. Local actors are connected and accountable to their communities and often the most efficient first responders to crises. Excluding them from decision making and finance impinges on the effectiveness of development assistance (Peace Direct et al., 2021[7]).

There are many constraints to localising aid and empowering communities to develop (Barbelet et al., 2021[41]). Chief among them is the branding of local groups as “risky” because many are unable to meet donor requirements – embedded in complex compliance systems – and are thought to lack capacity, says Degan Ali in her “In my view”. Donors tend to favour greater financial control of bilateral, earmarked and tied aid projects over co-ordination with local actors, joint approaches and national procurement (see “In focus” 14). However, as a number of contributors point out, short-term project‑based funding can sacrifice long-term sustainability and opportunities to strengthen staff capacities, retention and security; it also inhibits local actors’ ability to be independent, self-reliant and collaborative partners. In contrast, core funding aligned with local partner priorities would enhance autonomy and sustainability. A key enabler is having a clear sense of risk appetite and risk management strategies. 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 (see “In focus” 12).

Ideas for actions to support locally led transformation in partner countries can be found in Figure 2.

Figure 2. Support locally led transformation in partner countries

Modernise business models and financial management practices to align strategies, budgets and delivery

Development policy does not operate in a vacuum. Policy makers need to manage competing national interests without letting short-term pressures jeopardise the long-term common interest in effective development. Coherent policies and well-considered development co-operation can, and do, contribute to overarching long-term national interests.

DAC peer reviews find that development policy is becoming more integrated in ministries of foreign affairs and trade, other government departments, and national development finance institutes. This wider dispersal of the aid portfolio brings opportunity but also raises some concerns. For instance, many different agencies draw on ODA to extend grants and loans, knowledge sharing and technical co-operation and for purposes as diverse as stemming migration, handling refugee crises in-country and global health security (see Chapter 8 and DAC peer reviews). In her “In my view” article, Theo Sowa warns that the positive trend of feminist foreign policies also risks “pinkwashing” development if it focuses merely on promoting activities that include women and girls rather than on advancing equality and justice. Countries need to ensure they follow through with gender equality finance and actions and manage for policy coherence.

Increased crisis spending has triggered debates about the benefits and drawbacks of different aid modalities and instruments and the need to build a more well-rounded delivery toolkit for use in different contexts (see Chapter 8). At the same time, DAC peer reviews show that consistent pressures on human resources across development agencies and ministries result in more centralised programming and distance from local realities and less capacity for dialogue, engagement and building partnerships.

Increased crisis spending has triggered debates about the benefits and drawbacks of different aid modalities and instruments and the need to build a more well-rounded delivery toolkit...

In addition, budget cuts, a renewed focus on bilateral co-operation, earmarking and lack of strategic vision for multilateral co-operation undermine the potential of allocations to the multilateral system to enhance the collective impact on global challenges and at the country level. The increased volume of earmarked funds to multilateral organisations also contributes to financial instability and unpredictability for partner countries, as political or economic changes in donor countries can lead to an abrupt reduction of funding, putting projects, especially long-term ones, at risk (see Chapters 2 and 8 (OECD, 2022[35])). Some DAC members have introduced budgeting mechanisms to reduce year-on-year volatility and increase predictability in an accountable manner, which is good practice (see Chapter 8). Creating an international system for real-time co-ordination and tracking of aid decisions when shocks hit could also inform fast‑paced decision making by providers and improve the transparency and outlook of aid budgets for partners.

The pandemic seems to have spurred greater use of budget support and reliance on local partners for programme delivery and monitoring. However, commitment to align with and use country systems – including national development plans, results frameworks and monitoring systems – appears to be waning (see Chapter 8 and the case study by Schuster). Developing country actors say progress is slowed by political, programming and risk management obstacles.

There is scope for more strategic and targeted prioritisation of bilateral portfolios and to further enable the multilateral system to play to its strengths. However, bilateral and multilateral development assistance programmes and projects are increasingly fragmented and of low value, which creates significant costs for recipient countries and other partners (see Chapter 8). In 1960, DAC members, on average, provided aid to 15 recipient countries and territories. In 2021, the average was 97. Reducing aid fragmentation involves difficult choices on where to scale back and where to scale up support as well as co-ordination with an increasing number of development actors in low- and middle-income countries.

DAC peer reviews note the absence of strategic planning for country engagement, with missed opportunities for complementarity in diplomatic, commercial and development relations with partner countries. A result can be incoherence in actions (see Chapters 8 and 20). There is also scope for greater transparency of all development finance flows to countries as well as more multi-year predictability of aid budgets and programming. Between 2010 and 2020, for example, 13 countries in Africa experienced a one-year drop in grant revenues equivalent to at least 1% of GDP between 2010 and 2020 (see Chapter 8). Lack of predictability undermines effectiveness, and accountability and capacity to plan.

Portfolio approaches can better optimise and align scarce human and financial resources behind strategic objectives and build more meaningful partnerships across a range of actors. They can also create space for experimentation, innovation and failure (see Chapter 20). Investing in and drawing on lessons and evidence from evaluations, research, peer learning and expert communities, and wider results management systems are also essential for effective delivery. Organisations must learn how to learn, or risk stagnating and falling short.

Ideas for actions to modernise business models and financial management practices to align strategies, budgets and delivery can be found in Figure 3.

Figure 3. Modernise business models and financial management practices

Rebalance power relations and find common ground for partnerships

Evolving relationships between countries and questioning of paradigms and international norms are opening avenues for system-wide reform. Driven by concerns about climate justice, failures of the international financing system to meet their needs during successive crises, and power imbalances in international decision making, leaders from the Global South are increasingly stressing how the current system is unfair and needs reform to include the voice and recognise the agency of developing nations (Government of Barbados, 2022[42]). Contributions to the report outline calls for reforms to make the international financial system work better for them and ensure greater voice, agency and equal footing in partnerships for economic growth and development (OECD, 2020[24]; 2019[25]). Broader debates urge a more fundamental rebalancing of power that ends paternalism and racism in the aid system and beyond.

Contributions to the report outline calls for reforms to make the international financial system work better for them and ensure greater voice, agency and equal footing in partnerships...

Some OECD countries have started to address systemic racism, colonial legacies, top-down decision making and power imbalances, and neo-dependencies on foreign assistance (International Development Committee, 2022[6]; Omlo et al., 2022[5]). The discussion of power revolves around two questions: 1) the extent to which local actors have access to decision-making spaces; and 2) whether their voices count. In her “In my view” article, the Chair of the UK House of Commons’ International Development Committee, Sarah Champion, described testimonies the International Development Committee heard about racism in the UK aid sector. “Too often, decisions about funding and policy are taken in the offices of large, white-led organisations in the Global North though most aid programmes are delivered in low‑income countries in the Global South,” she noted. “We heard that these power structures are remnants of colonialism; the same paternalistic ideas underpin the common portrayal of affected populations as in need of ‘saving’.”

Some international non-governmental organisations are committing to shift power “in an international aid system that has long functioned as a hierarchy dominated by the Global North”, noting, “Our instinct for preservation is often in conflict with our desire for transformational change”. In their contribution, the chief executive officers of Plan International UK and Oxfam GB stress the need for urgent reform to address inherent paternalism and racism in partnerships and to work for transformative change. Official providers can incentivise reform by international non-governmental organisations by supporting the aims of the Pledge for Change and aligning their own support and actions to its goals.

Local knowledge – of the politics, vested interests and local delivery capabilities that matter in each context – is extremely valuable to design and execute relevant and effective development programming (Dissanayake and Dercon, 2022[43]). Yet local research and indigenous knowledge are underused for priority-setting and programming, mirroring a broader lack of recognition of Global South expertise. Most of the research funded, published and valued in the development sector is carried out by researchers from the Global North: Only one in six of the articles published in the top 20 development journals from 1990 to 2019 were by Southern researchers (see “In focus” 15).

The diversity of development actors – official and private – creates opportunities to find common ground; create new partnerships; and use multilateral channels, strategies and financing to collectively tackle the issues raised across the report. Sachin Chaturvedi, in his “In my view” article, points to the South-South partnership opportunities afforded by emerging financial platforms, including the New Marshall Plan, the Asia-Africa Growth Corridor, the Belt and Road Initiative, and the Silk Road Fund. Global South leaders do not view development partners through an either-or lens. Rather, different providers are seen as offering a range of comparative advantages (see Chapter 18). However, when competition between donors is high, as it is now amid geopolitical tension, partnerships and communication are strained, raising risks of duplication and actions unintentionally undermining the goals of another (see Chapter 2). The growing trend towards South-South and triangular co-operation shows there is an appetite to partner and leverage expertise and resources in some areas. Yet, different standards, accountability mechanisms and financing offers can also create an uneven playing field for international development actors, and this is a disincentive to join forces. Clear normative frameworks, shared goals and regular dialogue are conducive to collective action in development and more countries appear to be ready to find common ground in a spirit of shared responsibility for rising to today’s development and global challenges.

Ideas for actions to rebalance power relations and find common ground for partnerships can be found in Figure 4.

Figure 4. Rebalance power relations and find common ground for partnerships

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Notes

← 1.  Official development assistance is the DAC-agreed statistical measure of development co-operation resource flows. The criteria for ODA are that it is undertaken by the official sector, has the primary objective of promoting economic development and welfare, and has concessional financial terms. For further details, see: Official Development Assistance – definition and coverage (OECD, n.d.[47]).

← 2.  Calls to listen and engage more openly were made during the DAC@60 celebrations in 2021, for example. For details, see: DAC@60 Years page (OECD, 2021[48]).

← 3.  In 2019, an international task force developed a shared statistical measure of Total Official Support for Sustainable Development (TOSSD), including South-South co-operation and triangular co-operation. Pillar 2 of TOSSD tracks support for international public goods and global challenges. For more information, see the TOSSD key facts (TOSSD, n.d.[46]).

← 4.  Analysis by Ahmad and Carey found declining levels of concessionality for the LDCs between 2015 and 2019: Bilateral and multilateral lending interest rates increased from 0.34% in 2015 to 0.80% in 2019 and maturity periods shortened from 35.7 years in 2015 to 28.3 years in 2019 (see: https://doi.org/10.1787/e4b3142a-en). Between 2018 and 2019, the share of grants in bilateral loans also declined to the LDCs.

← 5.  For further analysis on development finance flows beyond ODA, see: https://doi.org/10.1787/fcbe6ce9-en.