This chapter summarises the key findings of the report and offers a set of recommendations to strengthen multilateral development co-operation for the achievement of the 2030 Agenda. The Chapter begins by discussing why a renewed commitment to multilateralism is needed to achieve the 2030 Agenda. It then highlights how multilateral development co-operation is evolving, including because of a growing number of actors – governments, philanthropists and others – engaging with the multilateral development system. It also describes how the funding and operations from multilateral organisations are changing and may need to further adapt to the new development agenda. Finally, the Chapter provides recommendations that can help sovereign states and other contributors to the multilateral system to provide good donorship or ‘stewardship’ to the multilateral development system to enhance its contribution to the 2030 Agenda. These recommendations focus on contributors’: 1) policies, decision-making processes and monitoring practices, and 2) funding policies and practices.
Multilateral Development Finance
Abstract
Multilateralism, as we know it today, emerged at the end of the Second World War to prevent repeating such extreme escalations and preserve peace.1 In 1942, President Roosevelt of the United States, Prime Minister Churchill of the United Kingdom, Maxim Litvinov of the USSR, and T.V. Soong of the Republic of China signed a document that became known as the United Nations Declaration. Representatives of 22 more nations subsequently signed the Declaration. The United Nations (UN) was then officially established in October 1945.2
The Bretton Woods institutions too were created at the end of the Second World War to forge a post-war economic order based on consensual decision making and co-operation. The central ambition was to overcome the destabilising effects of the previous global economic depression and trade battles. The Organisation for Economic Co-operation and Development soon became part of this new system. Founded in 1948 as the Organisation for European Economic Co-operation, it was reformed in 1961 into the Organisation for Economic Co-operation and Development, with membership extended to non-European states.
Today, the multilateral system is bigger and more complex, having expanded its reach and scope. It includes institutions established during the decolonisation period, e.g. regional banks, soft windows and UN specialised agencies3; special purpose global vertical funds created since the 1990s; and an increasing number of institutions that are no longer dependent on traditional donors and largely owned by the global South. These institutions form a cornerstone of global development. They have supported developing countries’ efforts to promote growth and development for many decades. Their strengths lie in extending the scale and reach of development finance and mobilising knowledge. They are also a major source of expertise and a powerful channel for intermediating and allocating resources.
While the world and the multilateral system have changed, the objectives of multilateralism remain valid. These include the need to avoid economic depression resulting in authoritarianism and war; and the need to establish effective global governance and order to create peaceful and just societies. Today’s level of interconnectedness of our societies makes the need for multilateral co-operation even greater. Events in one part of the world can affect the lives of people on the other side of the globe, as the fortunes of countries are increasingly intertwined.
The 2030 Agenda for Sustainable Development places particular emphasis on multilateral co-operation and global actions. It recognises that the biggest challenges of our time are global in nature, including climate change, peace and security, global health, and inequality. As such, they require integrated solutions. Global interdependence creates a need for collective action and international policy co-operation to achieve fundamental global public goods, such as economic stability and development, peace and security, and environmental sustainability. A multilateral system that is effective, inclusive and accountable is essential to solving these challenges. It is needed to promote a level playing field across actors of the global economy; set high social, economic and environmental standards; and develop norms for responsible business conduct in globalised production systems, global capital and trade markets. Multilateral co-operation is needed to resolve differences peacefully; agree on common rules; establish mechanisms to better manage international flows; and create channels for exchanging ideas, experiences and practices so that countries learn from each other. Multilateralism, however, needs to address its discontents and evolve to be fit for purpose. It has been argued that the Agenda 2030 calls for integrated solutions that generate social, economic and environmental value and that extend across development, peace, and humanitarian domains, while the multilateral development system often works in siloes and lacks the necessary level of coherence and integration in its approaches and interventions (Jenks and Kharas, 2016[1]). The Agenda 2030 calls for inclusive partnerships of a wider range of stakeholders around a unified agenda, while the multilateral development system is not as inclusive and representative as it would need to be and its ability to engage with partners beyond governments remains limited. Finally, much of the current discontent and mistrust around multilateralism derives from the fact that too many people, both in the developing and developed economies, have missed out as a result of the policy prescriptions emanating from the current multilateral system.
The global economic and financial crisis laid bare some fundamental weaknesses in standard economic and financial policy frameworks. It showed that policies seeking to maximise economic growth, almost as an end in itself, did not pay off, leaving us to face a world where growing inequality, growing indebtedness, insufficient investment, and insecurity are key challenges affecting developed and developing countries alike. To rebuild confidence, multilateral organisations need to be a credible source of new thinking and policy solutions. These should reflect the increased heterogeneity of economic actors and the complexity, uncertainty and interconnectedness of the world we live in. They need to foster policies that put people at the centre, effectively bridging gaps and reducing inequalities, to avoid economic imbalances becoming so big that they bend democracy. These policies should bring economic, social and environmental value. To foster new thinking and new sustainable development solutions, a plurality of views will represent a plus and not a minus.
This report contributes to the broader international debate on why we need multilateral development co-operation and how to make it more effective, inclusive and accountable to achieve the 2030 Agenda. The report provides new evidence and recommendations for a new “pact” on multilateralism, one founded on recognition of the mutual responsibility of sovereign states and multilateral institutions to create a stronger, more effective multilateral system.
Part I of the report examines how the multilateral development co-operation landscape is evolving. In particular, Chapter 2 highlights major trends and developments in the volume and sources of funding to the system. Chapter 3 reviews the nature and scope of the finance and operations provided by the multilateral development system. As an innovation to previous editions of this report, Chapter 2 provides not only an analysis of main trends of official development assistance (ODA) flows to the multilateral development system, but also assesses the scope of funding from other sources. These sources include China and other emerging economies, philanthropy, and private sector.4 As a second innovation to previous editions of the report, Chapter 3 delves into multilateral organisations’ concessional as well as non-concessional operations and how these may need to adapt to the new development agenda. Since this year’s edition of the report is not solely focused on aid flows, it is called Multilateral Development Finance.
Part II of the report focuses on how the international community can forge a more effective multilateral development co-operation system. To achieve the 2030 Agenda for Sustainable Development, the multilateral co-operation system will need to evolve and address its discontents. It can only succeed with the support – or “good donorship” and “stewardship” – of the sovereign states that created it and that continue to shape it as its members, funders and shareholders. Support from other contributors to this system will also be required. Therefore, the report introduces the concept of “good multilateral donorship” and reviews existing principles and commitments on good multilateral donorship (Chapter 4). It then builds an evidence base on two sets of building blocks of good multilateral donorship for the 2030 Agenda, on: 1) sovereign states’ policies, decision-making processes and monitoring practices vis-à-vis the multilateral system (Chapter 5); and 2) funding policies and practices (Chapter 6).
Building on such evidence, this overview chapter lays out recommendations that could form a basis for “Principles of good multilateral donorship in the era of the 2030 Agenda”. The principles will need to be discussed and ultimately endorsed through an inclusive consultative process open to Development Assistance Committee (DAC) members as well as other contributors and stakeholders in the multilateral system. The Organisation for Economic Co-operation and Development (OECD) metrics on good multilateral funding presented in this report could be expanded beyond the WHO pilot to be part of a monitoring framework for such Principles. The metrics could effectively monitor the efforts of both contributors and multilateral institutions to abide by such principles and thus contribute to a more effective multilateral development system.
The financing landscape of multilateral development organisations is evolving. DAC countries continue to allocate a stable share of their ODA to multilateral organisations (USD 63 billion in 2016, or 41% of total ODA, Figure 1.1, left panel), signalling the strong importance placed on these organisations for fostering peace and development worldwide.
However, this funding is increasingly earmarked for specific purposes. This creates opportunities to fill gaps and innovate as well as challenges to the alignment of these resources to the strategic priorities of multilateral organisations and to their ability to operate effectively. Earmarked funding reached USD 21 billion in 2016, double its 2007 level. Its growth accelerated after 2013 due to increased humanitarian funding, which in 2016 came to account for 43% of earmarked funding. For some institutions, it represents a conspicuous part of donor funding, reaching 80% of donor funding for the UN (Figure 1.1, right panel). The UN has repeatedly called for an increase in ‘the level and predictability of core funding’ to “uphold [the UN’s] neutrality and multilateral nature” (United Nations, 2016[2]). The World Bank Group is also implementing trust fund reform to better align resources to the strategic orientations of the Group and minimise negative impacts.
In the near future, donor resources to the multilateral development system could decrease because of rising mistrust in multilateralism. Political developments in some large multilateral providers are leading governments to pursue policy goals through unilateral or ad hoc measures, rather than working together. This is detrimental to the benefits that multilateral institutions can provide for modern societies and to achieving sustainable development globally.
The multilateral development system is being called on to provide a broader and more complex development agenda. DAC members have a responsibility to maintain funding levels and ensure that resources are sufficient to achieve the 2030 Agenda for Sustainable Development.
Note: Disbursements, excluding debt relief and contributions from the European Union.
Source: Authors' calculations based on (OECD, 2018[3]), “Creditor Reporting System” (database), https://stats.oecd.org/Index.aspx?DataSetCode=crs1.
In addition to funding from DAC countries, other sources of funding are emerging or growing in importance. These include China and other emerging economies, the private sector and philanthropy, and other multilateral organisations. Multilateral institutions have different financing models and are able to attract resources beyond DAC donors’ grants to different extents. However, both public and private resources are slowly helping to grow the pie of funding available across multilateral organisations.
Institutions that rely on sovereign states and philanthropy have experienced slow increases in resources. These are institutions such as the UN entities and vertical funds, which mostly operate a grants-in-grants-out model, with no or limited scope for receiving contributions in loan form, or for internal financial engineering. In contrast, the International Development Association (IDA) and the ADB have recorded major, transformational boosts of resources, through the IDA’s debut on the capital market and the merger of the ADB’s soft fund into the bank’s overall balance sheet. The share of funding beyond ODA resources is lowest for the Global Fund (12%) and highest for IDA (71%, largely because of resources from market borrowing), accounting for 35% for the UN development system (Figure 1.2).
Note: For IDA, internal resources include: reflows (SDR 14,200 million); carry forward of arrears clearance (SDR 800 million); IBRD transfers expected (SDR 300 million); and IFC transfers expected (SDR 100 million) (World Bank Group, 2017[4]).
Source: Data for the United Nations development system was kindly provided by UN/DESA. Data for IDA18 was drawn from (Manning, 2017[5]), Multilateral development aid, https://www.wider.unu.edu/sites/default/files/Publications/Working-paper/PDF/wp2017-172.pdf and (World Bank Group, 2017[4]), Report from the Executive Directors of the International Development Association to the Board of Governors, http://documents.worldbank.org/curated/en/348661486654455091/pdf/112728-correct-file-PUBLIC-Rpt-from-EDs-Additions-to-IDA-Resources-2-9-17-For-Disclosure.pdf. Data on the Global Fund was drawn from the statistical data available on the organisation’s website: https://www.theglobalfund.org/media/1504/replenishment_2016conferencepledges_list_en.pdf?u=636488964230000000.
Funding beyond ODA from DAC countries shows the following trends:
China is carving out a leadership role in the multilateral development system. This was especially evident in IDA18, where the massive increase in financing from China made it the 11th largest funder to IDA. In addition, China’s increased engagement with the World Bank is apparent in World Bank-hosted G20 with a strong Chinese imprint (e.g. Global Infrastructure Connectivity Alliance and the G20 Initiative in Supporting Industrialization in Africa and Least Developed Countries (LDCs). China has increased its financing to the United Nations Development System (+80% between 2011 and 2016) to extend the reach of its international co-operation rather than to implement development projects within its own borders (as did other emerging economies over the same period).
Developing countries are increasing their contributions to the multilateral system but their share remains small. Shares contributed by developing countries were 5% for the United Nations Development System5, 2% for IDA (largely from China) and only 0.5% for the Global Fund.
In a more complex and differentiated multilateral system, multilateral organisations, including the EU, are becoming increasingly important funders to other multilateral institutions. This report recognises the dual role of the European Union, which is both a multilateral organisation receiving funding from its member states and a donor (as well as being a DAC member). In 2016, the European Union accounted for almost 10% of all funding to the United Nations Development System and 5% of funding to the Global Fund. The European Union could continue to grow in importance as a financier of other multilateral organisations, especially if the EU budget proposing an increase in resources for external action is approved.
Private funding is expanding the lending capacity of IDA, while it has led to more earmarking for the United Nations Development System (UNDS). The additional lending resources that IDA will draw from bond proceeds are huge (30% of total resources for IDA18, or Special Drawing Rights (SDR) 15.9 billion). They basically come unearmarked, although IDA may need to tailor its bond content to investor preference. Its allocations across countries and the degree of concessionality of its operations may be impacted to an extent that are not yet clear. In contrast, private finance (the commercial private sector, private philanthropy and non-governmental organisations [NGOs]) remains a small part of the UNDS funding portfolio: 9% in 2016, or USD 2.4 billion, although it does contribute to some large initiatives and projects in individual UN organisations. Funding to the UN, especially from corporations, can however lead to issues common to other forms of earmarking of resources. These include: fragmentation and misalignment of resources with the priorities and strategic objectives of the UN entities involved, to the detriment of the multilateral character of UN operations and its democratic governance (Seitz and Martens, 2017[6]).
In the context of stagnating donor resources and substantial financing needs to achieve the ambitions of the 2030 Agenda, broadening the funding base and accessing additional sources of financing remains a priority for most institutions. Additional resources should, however, align with the mandates of the multilateral organisations and developing countries’ needs, as identified by the 2030 Agenda. For instance, the increasing trend of both ODA funding and other sources of financing provided as scattered and piecemeal project-based interventions could further push the multilateral system to specialise in project delivery. This would jeopardise the ability of the system to provide the transformative, holistic and integrated solutions that are needed to achieve the 2030 Agenda.
Sovereign states, thus, need to ensure that the funds they provide support good multilateral co-operation (as detailed in section 1.3). They also need to support multilateral organisations so that non-ODA funding sources, such as corporate funding, are fully aligned to the institutions’ mandates and the 2030 Agenda. Sovereign states could support multilateral organisations to adopt safeguards to preserve the use of resources in support of the people and the countries that most need it.
The volume of resources committed to developing countries by multilateral organisations is increasing, while concessionality decreases. Funding grew from USD 127 billion in 2012 to USD 162 billion in 2016, but the share of non-concessional resources increased faster than concessional finance (see Figure 1.3) This is because the growth was mainly driven by multilateral development banks (MDBs), which account for two-thirds of the increase. They achieved this by balance sheet optimisations, increasing fundraising from capital markets (rather than donor budgets) and loan repayments, which expanded their lending capacity.
USD value of concessional and non-concessional operations of multilateral development partners (2008‑2016)
Note: USD commitments (2016 prices). Data includes funding earmarked from DAC countries and bilateral development partners to multilateral organisations. Amounts include estimates derived from annual reports. Data only include amounts from bilateral and multilateral development partners reporting to the DAC.
Source: Authors' calculations based on (OECD, 2018[3]), “Creditor Reporting System” (database), https://stats.oecd.org/Index.aspx?DataSetCode=crs1 and annual reports.
Concessional finance from multilateral development partners has grown slowly over the last five years, from USD 73 billion in 2012 to USD 80 billion in 2016. This represents an increase of 10% in real terms, compared to 45% for all multilateral finance in the same period. The concessional finance increase was mainly due to a boost of earmarked grants for humanitarian assistance and increased financing for health from the Global Fund and IDA.
Increased volumes of concessional and non-concessional finance from multilateral partners led to greater amounts for fragile contexts, but on harder terms. Multilateral development finance in fragile contexts grew from USD 42 billion in 2012 to USD 59 billion in 2016 (+45%). However, much of this increase was due to an increase of non-concessional loans, which reached 31% of the total, up from 14%. This change partly results from graduation trends; the opening of hard window loans to low-income countries (LICs) with a solid debt profile; and a broader trend of debt growth in the some of the poorest countries, which are also borrowing from the bond market, and on semi-concessional terms from bilateral loan agencies, notably China EXIM and the Chinese Development Bank.
With a growing number of development actors, multilateral organisations need to demonstrate their value added and build on comparative advantage to stay relevant and effectively contribute to achieve the 2030 Agenda. Data analysis and the OECD/DAC “2018 Survey on Policies and Practices vis-à-vis the Multilateral Development System” highlighted the areas where multilateral development partners are more active and what bilateral development partners expect from them. While donor perception and the amounts allocated to specific sectors do not represent a real comparative advantage, they offer a basis for discussion on the division of roles among multilateral development partners and bilateral counterparts.
Despite the evident difficulties in defining comparative advantages for a broad and diverse group of institutions, the following can be attributed to multilateral development partners:
expertise in mobilising resources from public and private sources;
specialised knowledge in policy reforms and specific sectors, e.g. social sectors (UN agencies and vertical funds) and infrastructure and financial services (MDBs);
extensive country presence and political knowledge, including in fragile contexts;
convening power for collective action in development matters;
delivery of global public goods (GPGs) in thematic areas (e.g. peace and security, climate change, pandemics, migration, etc.) or through provision of norms, standards and principles that shape “the rules of the game” in various sectors.
In particular, responses to the OECD/DAC 2018 Survey suggest that DAC countries believe GPGs, field presence and convening power are the most important comparative advantages of multilateral development partners. Building on these perceived comparative advantages, and in view of the new imperatives of the 2030 Agenda, DAC members believe that multilateral development partners should increasingly focus on broad crosscutting issues. The issues include peace, security and fragility, climate change, humanitarian aid, food security and inclusive growth.
Data analysis shows that multilateral development partners are already focusing on some of these thematic areas. They will need, however, to ramp up efforts and effectiveness, if they are to contribute to the 2030 Agenda. The data show that multilateral development partners:
channel more of their financial support through country governments, compared to bilateral development partners, including funding for policy and institutional development, or budget support;
are increasingly implementing programmes in fragile contexts delegated by bilateral development partners, particularly for humanitarian assistance;
allocate greater shares of their portfolios to private sector development than most bilateral development partners, particularly for infrastructure (Figure 1.4)
mobilise more private finance for development compared to bilateral development partners, at least in terms of overall volumes of financing provided.
Bilateral and multilateral development finance for private sector development (annual average, 2012-2016)
Note: USD commitments (2016 prices). Private sector development defined and clustered based on (Miyamoto and Chiofalo, 2017[7]).
Source: Authors’ calculations based on (OECD, 2018[3]), “Creditor Reporting System” (database), https://stats.oecd.org/Index.aspx?DataSetCode=crs1.
The 2030 Agenda calls for a paradigm shift in terms of financing practices and approaches. This requires moving from transaction-based approaches to system-wide approaches that build on comparative advantages of multilateral organisations and the use public and private resources for development. In particular, multilateral development partners need to:
Adapt operational strategies and approaches to a crosscutting and integrated development agenda by breaking the silos and mainstreaming Sustainable Development Goals (SDGs) in country programmes based on local needs. Multilateral development partners have already started aligning with this new development paradigm through new policy strategies and results frameworks. However, they need to demonstrate results as these efforts are at early stages.
Support global public goods and steering discussions to ensure an appropriate division of roles and adequate resources for these functions. Global public goods tend to be underfunded because sovereign states would not reap the whole benefits of their investments in these areas, which require collective action through the multilateral system. Moreover, in a large and expanding galaxy of multilateral organisations, the division of labour on “whom should do what” is unclear. Global governance discussions should be supported by multilateral development partners to identify a clear division of roles based on common but differentiated capacity. It is also important that adequate funding streams are available for these functions.
Support co-operation and build on comparative advantages to promote coherence, both within the multilateral system and in the global development finance architecture. Multilateral development partners should collaborate to improve systemic coherence and coherence with other development partners. Multilateral development partners are carrying out institutional reforms, engaging in strategic framework partnerships, undertaking joint projects and collaborating in intergovernmental processes to improve co-operation. It will be important to ensure that these collaboration efforts produce results on the ground.
Increase support in fragile contexts and manage increased operational and financial risks. Multilateral development partners are increasingly supporting fragile contexts through loans for infrastructure and production, and through earmarked funding for humanitarian assistance. Growing shares of operations in these contexts for grant providers, such as the UNDS and vertical funds, involve increasing an already high share of operations in these risky contexts. For loan providers, e.g MDBs, this will involve addressing growing sovereign risks, increased attention to debt sustainability, adapting burdensome administrate practices to these contexts, specialised skillsets and co-operation with other institutions with more political legitimacy (e.g. UNDS).
Boost the contribution of the private sector, while ensuring that these operations are aligned with national priorities and bring economic, social and environmental value. Multilateral development partners, particularly the MDBs and the EU, provide large amounts to promote private sector-led growth and mobilise finance from the private sector. While increased financing is important to fill current development gaps, this is not enough to achieve the 2030 Agenda. Past trends highlight the need to ensure that these private sector development operations and blended finance efforts are tailored to local contexts; include social and environmental safeguards; and are properly monitored and evaluated to ensure development gains.
Improve resource mobilisation for concessional resources, including through more and better-pooled-funding mechanisms. The slow growth of concessional resources and the increase in earmarked resources, which are piecemeal grants for specific projects can impair the funding of crosscutting and integrated development initiatives. This is evident for the UNDS, which is mostly financed through earmarked funding. Pooled-funding mechanisms can help increase the quality of earmarked funding while accommodating donors’ needs for greater accountability and visibility of funds. However, this requires the mechanisms to be well governed, adequately funded, flexible, predictable and aligned with the mandate of the multilateral organisations.
Multilateral organisations are responsible for a multilateral development co‑operation system that can achieve the 2030 Agenda. Multilateral organisations need to consider both long-standing inefficiencies and adapt to achieve the new challenges. A shift from funding to financing, for instance, will require strengthening and re-profiling the skill sets of multilateral organisations and the scaling-up of related resources. It will also require adjustments and improvements in the co-ordination and accountability mechanisms of these institutions, as well as in their financing models and instruments.
At the same time, the multilateral system can only succeed with the support – or “good donorship” – of the sovereign states that created and shape it as its members, funders and shareholders. Sovereign states influence multilateral organisations through their participation in multilateral governance and decision-making bodies. They also affect the policies, operations and incentive structures of multilateral organisations through their policies and practices, including their funding. Therefore, they have the opportunity – and responsibility – to adopt policies and practices that are conducive to a more effective multilateral system.
The sections below consider evidence for two sets of building blocks for good multilateral donorship in the era of the 2030 Agenda. They concern: 1) sovereign states’ policies, decision-making processes and monitoring practices vis-à-vis the multilateral system, and 2) funding policies and practices.
The broad and integrated nature of the 2030 Agenda requires a broader range of partners to contribute expertise and resources. While one or two ministries are responsible for engaging with multilateral institutions, line ministries could increasingly establish direct partnerships with the relevant international institutions to advance specific SDGs. Further, to manage policy trade-offs and reduce incoherence among policy areas in line with the 2030 Agenda, line ministries will need to collaborate more, including in partnership with relevant multilateral organisations. National non-state actors may also be engaged in the efforts to achieve the 2030 Agenda through multilateral partnerships.
Encouraging broad consultations and whole-of-government strategic thinking on the expected outcomes and modalities for engaging with multilateral organisations is essential for harnessing benefits from this plurality of actors and for reducing overlaps. The examples offered by some DAC members on participatory bodies and fora provide good practices that other sovereign states could adapt to their own specific context.
These discussions could explicitly tackle issues such as the balance between bilateral and multilateral ODA and the core/non-core ratio of multilateral allocations. Using information on what channels are most effective in particular contexts, discussions could clarify the objectives and scope of multilateral engagement to encourage cohesive use of the multilateral co-operation system.
These discussions could also be central to the development of clear, evidence-based policy documents and guidelines on partnerships with multilateral organisations. At present, DAC countries engage with multilateral organisations through a multitude of policy documents.6 Almost all of these are their overarching development co‑operation strategy, while several are stand-alone multilateral strategies or thematic and sector strategies (see Figure 1.5) While more policy documents do not guarantee more effective use of the multilateral development system, a comprehensive and forward‑looking vision of common goals and priorities can be an important element of well-functioning partnerships with multilateral organisations. It can help providers mainstream the goals and priorities for multilateral partnerships within the administration and can help ensure that these are reflected in actual funding allocations.
Note: This illustration only includes the DAC members that responded to the questions on multilateral policies of the OECD/DAC 2018 Survey on Policies and Practices vis-à-vis the Multilateral Development System.
Source: OECD/DAC 2018 Survey on Policies and Practices vis-à-vis the Multilateral Development System (unpublished).
Although the main responsibility for allocations to multilateral organisations generally rests with the Ministry of Finance (for the MDBs) or the Ministry of Foreign Affairs (for all other multilateral institutions), several other ministries and institutions do extend funding to multilateral organisations. For DAC countries, this number reaches 15 ministries/institutions (for Spain), and averages 7 (data refer to core and earmarked resources together in 2013-16; Table 1.1). The allocation of earmarked resources is particularly scattered, owing to the decentralised, ad hoc nature of this kind of funding. In addition, in 2013-16, 16 DAC countries had one or more agencies/ministries extending earmarked funding only once throughout the period, in contrast to nine for core resources.
Funding from many entities is not necessarily bad and could harness expertise and resources from a range of partners. However, uncoordinated funding from many different donors can reduce overall coherence and strategic focus. It can also weaken partnerships, which require trust, transparency and continuity. Therefore, sovereign states will need to encourage effective co-ordination mechanisms that maximise the benefits of the engagement of a plurality of donor entities, while keeping fragmentation and duplication costs low. Effective co-ordination is also needed at different levels of administration, including among country offices, headquarters and the governing boards of multilateral organisations.
In recent years, increased public scrutiny of aid budgets coupled with budget constraints have led DAC countries to conduct a multitude of bilateral assessments on the performance of multilateral organisations as a primary tool for achieving greater transparency and accountability of funds to the multilateral development system. New data from the OECD/DAC “2018 Survey on Policies and Practices vis-à-vis the Multilateral Development System” that the number of bilateral assessments and reviews of multilateral organisations remains high, totalling 128 in 2015-18 (Table 1.2).
Bilateral assessments can vary by type (e.g. corporate vs. project, country, or thematic), scope and impact. Many are essentially desk reviews that rely heavily on secondary sources. Some, however, use primary data and impose high transaction costs on multilateral organisations, while often failing to achieve either greater performance-based donor allocations or to promote better performance. Donor reviews of multilateral organisations look at some variation of two major substantive areas: how well an organisation is performing and how well its work is aligned to national objectives, compares to bilateral interventions, or otherwise fulfils national priorities.
Note: Sum of funding in 2013-2016. The “number of extending agencies” refers to the number of agencies that have extended multilateral funding at least once over the period 2013-2016.
Source: Authors' calculations based on (OECD, 2018[3]), “Creditor Reporting System” (database), https://stats.oecd.org/Index.aspx?DataSetCode=crs1.
Sovereign states need to ensure that scarce public resources to the multilateral development system are spent effectively and accountability mechanisms, particularly when robust and independent, can help them achieve that. However, these mechanisms should not impose excessive burden on multilateral organisations and should allow constructive engagement around performance through organisations’ own internal accountability mechanisms. This is especially important for large donors - who can use their influence to impose conditions linked to the outcomes of bilateral assessments - and for donors who are considering establishing new bilateral assessments, like the United States (e.g. the Multilateral Aid Review). Bilateral assessments can be powerful instruments to achieve strong multilateral engagement based on principles of transparency and effectiveness, but they should focus on where they add value and avoid duplicating work done by multilateral efforts like MOPAN. This means concentrating on the national perspective and relying heavily on secondary data collection and existing assessments for questions of organisational performance and results.
To encourage greater system-wide effectiveness, contributors to the multilateral system could support multilateral organisations develop better results frameworks that could finally be aggregated over the system. One way to achieve this may be for donors to ensure accountability exercises like MOPAN demand, not only robust results frameworks for an institution on its own, but a harmonised approach. This would allow to identify result gaps and overlaps across the system, creating an evidence base for a strategic reflection on the effective division of labour within the system and for systemic strategic guidance.
Source: Author’s calculations based on responses to the OECD/DAC “2018 Survey on Policies and Practices vis-à-vis the Multilateral Development System” (unpublished).
Current steps to encourage groups of multilateral organisations to work better together are positive. The G20 Eminent Persons Group on global economic governance, for instance, called on the MDBs to collaborate more closely on “principles, procedures, and country platforms” and to work more “as a system”. The UNDS with its reform on country teams intends to promote greater coherence across UN entities and with other partners. As part of these efforts, it will be particularly important to establish harmonised working practices (both within the UNDS and across MDBs) to effectively reduce the burden on developing country governments.
These initiatives should be extended to reflect on how the whole system, and not just parts of it, can work better together and be more effective. A reflection is needed on whether, on the basis of their mandates and relative comparative advantages, imbalances exist across multilateral institutions – in terms of their financial capacity and functions – and if gaps exist in the delivery of results for the new integrated sustainable development agenda.
In this respect, the Global Action Plan for SDG3 provides an example that could be extended to other SDGs and areas. The plan aims to align the programme budgets of institutions with a mandate on health and to encourage effective collaboration among multilateral institutions and relevant partners. It would define the strategic priorities that each institution needs to set to contribute to achieve SDG 3. This could in turn guide the distribution of donor resources across these institutions. What would matter, then, would be that each player is adequately funded to deliver on the SDGs and that, across players, the world meets the SDGs. This approach could be accompanied by monitoring frameworks that aggregate results of all institutions to identify gaps (as discussed above). Country platforms could also be established to undertake project identification and effectively pool funds and expertise from multilateral institutions and other stakeholders.
Note: Numbers in the puzzle pieces indicate the corresponding recommendation in section 1.4.
Source: Authors
Funding practices affect the ability of multilateral organisations to deliver. The complexity and scope of the development challenges multilateral organisations work on have increased over time. In contrast, funding that is predictable and aligned to the strategic orientations of the organisations has been falling, challenging the ability of multilateral organisations to perform at their best and to deliver on their mandates. This is why both the UNDS and MDBs have acknowledged financing challenges as potential barriers to achieving the 2030 Agenda. In response, they have placed reforms to attract more and better financing at the core of the strategies they have developed to re-position themselves and be fit for purpose to contribute to the achievement of the 2030 Agenda.
For much too long, however, in international fora and domestic administrations, the discourse on providing adequate resources to the multilateral system and following good practices has been slow. In the UN context, for instance, it has remained strongly polarised between the need to supply core resources to preserve the multilateral character of the system and the freedom to earmark funds.
To contribute to overcome this impasse, an innovative multi-dimensional metrics on good multilateral funding was developed for this report.7 This approach represents an attempt to quantify and operationalise key components of good multilateral funding, acknowledged both in the literature and in the policy discourse. These include predictability, flexibility, and alignment to the mandate and the agreed programme of work of the multilateral organisation. Figure 1.7 illustrates how each of these dimensions is defined and measured. Further details are provided in the Annex of Chapter 6 of this report.
This new OECD metrics was developed using the financing situation of the World Health Organization (WHO) as a case study, building on the granular statistical data made available by this organisation. The health sector and WHO’s funding situation are considered here a “tracer” on effectiveness, offering insights and lessons for other sectors and institutions that face similar funding challenges in terms of insufficient alignment, flexibility, co-ordination, etc. The analytical framework measures the performance of both donors (“contributors” in Figure 1.7) and the multilateral organisation’s Secretariat (“WHO Secretariat”), as well as the funding situation that results from the actions of both (“WHO overall”) to assess the quality of funding. Inherent in the framework is the recognition that multilateral organisations and sovereign states have a common responsibility towards good multilateral funding to achieve better development results. The metrics acknowledges that contributors face different challenges and trade-offs to improving the quality of the multilateral funding they provide, due to political, structural and organisational realities. Disentangling the quality of financing over different dimensions can thus identify good practices and specific steps for improvement.
Source: Authors
Findings from the metrics corroborate the idea that contributors and multilateral organisations both have a role to play in advancing the quality of multilateral funding. For instance, to increase the predictability of funding, contributors can make multi-annual financial commitments and reduce year-on-year volatility. Multilateral organisations can adopt integrated budget frameworks that provide a comprehensive view of the entire funding needs for the implementation of the biannual programme (Figure 1.8). At the same time, an institution’s ability to achieve better results on some of the quality dimensions may be hindered by contributors’ behaviour. For instance, WHO’s ability to fully achieve results is constrained by the hard earmarking of resources from contributors, who designate resources for specific projects, often in already overfunded programme areas.
OECD metrics on good multilateral funding, 0=low performance; 1=high performance
Source: Authors based on statistical data from WHO for the 2014-2015 biennium. Data were kindly provided by the WHO for this report and are not publicly available.
The application of the OECD metrics on good multilateral funding to WHO’s funding situation reinforces the case for adequate sovereign state funding for the multilateral development co-operation system, highlighted in Section 1.2. WHO is operating in a crowded global health architecture, with the emergence of large global funds and many additional initiatives and players. However, it has been able to maintain adequate funding levels and to fund, on average, the programme of work agreed with its membership (Figure 1.8). This was possible thanks to access to resources from a wider range of partners and to the broader membership, which allowed to fill the gap between the agreed programme budget and the sum of assessed contributions. On the contrary, the 12 contributors considered in this exercise topped up assessed contributions with voluntary funding only to a limited extent in order to allow the organisation to achieve the full implementation of the programme budget (with the exception of Norway and Sweden, whose voluntary contributions exceed their assessed contributions by multiple times).
The OECD metrics suggests that the predictability of WHO’s funding has increased, mainly as a result of: 1) WHO’s adoption of an integrated budget framework; 2) contributors’ provision of funding agreements with longer time frames; and 3) a decrease in funding provided in the last four months of the biennium to be spent against a tight timeframe (‘the end of the year rush’).
Earmarked funds from some contributors provided good predictability, highlighting that, while not all funding is equally ‘good’, earmarked funding is not necessarily bad. For instance, voluntary contributions from the Bill and Melinda Gates Foundation (BMGF), mostly committed on a multi-year basis, to WHO provide a predictable funding stream.
Contributors acknowledge the importance of enhancing the predictability of multilateral funding and some are taking steps in this direction. For instance, Germany is working on solutions together with the Federal Ministry of Finance for more sustainable multi-year funding to WHO.8 France is working to improve predictability by announcing when the volume and repartition of its voluntary contributions earlier. Finally, in response to the outcomes of the World Humanitarian Summit and the Grand Bargain commitments Canada is increasing its multi-year funding for humanitarian assistance. These are positive examples that need to be taken to scale.
Hard earmarking to WHO has increased steeply and is strongly associated with a misalignment of resources. It peaked at 66% of WHO’s total resources in 2014-2015, being mostly provided for already highly overfunded areas of WHO’s work programme. Hard earmarking left other work areas chronically underfunded, restricting WHO’s ability to shift resources to where they were needed the most and to fully achieve output results. Both ‘old’ and new sources of funding are contributing to this hard earmarking and misalignment of resources, pointing to the need to better match resources to the areas needing financing in line with the priorities identified in the programme budget by the full membership of the organisation. For instance, funding from the Bill and Melinda Gates Foundation, albeit largely predictable, is largely targeted at overfunded areas and hard earmarked (Figure 1.9). Funding from France, in contrast, constitutes good practice; its funds are aligned with the programme budget priorities to a higher degree than those of WHO’s top contributors.
Better use of existing and new multi-donor trust funds increase the softness and flexibility of earmarked funds upstream and enhance the effectiveness of emergency responses. In fact, part of the misalignment of funds to WHO stems from funds earmarked to respond to the Ebola outbreak. This funding, although necessary, would have been more effectively mobilised and deployed through a contingency fund, such as the one later established by WHO. Other multilateral organisations, such as the United Nations Population Fund (UNFPA)9 and the United Nations Children's Fund (UNICEF), have established special windows and funds to gather softly earmarked resources. However, they are not equally successful in attracting funding to these windows.
Multilateral organisations could encourage a greater use of such multi-donor trust funds by providing greater visibility for the donors who subscribe to them. These efforts could be part of multilateral institutions’ broader efforts to enhance the traceability and transparency of resources, from source to destination. WHO’s Financing Dialogues represent good practice in this area.
Finally, it is important to explore additional measures to re-direct some hard-earmarked funding towards more soft earmarking or core resources. In 2018, the UNDS adopted a 1% levy on hard-earmarked resources as part of the funding arrangement for the new resident co-ordinator system. It is important to monitor this measure’s impact on hard earmarking and global multilateral funding levels and to explore how it can be replicated in other multilateral contexts.
The analysis based on the OECD metrics on good multilateral funding suggests that widespread hard earmarking of resources is associated with highly fragmented funding to WHO. Most voluntary funds designated for specific purposes are, in fact, provided in small, piecemeal amounts, increasing fragmentation. Fragmentation is measured as the total USD volume of voluntary contributions divided by the number of agreements. It is above average for all but five contributors (i.e. Australia, Bill and Melinda Gates Foundation, Canada, Sweden and Japan).
Fragmentation of funding can be a direct consequence of a complex internal architecture of entities extending voluntary contributions to WHO. This is because each entity exclusively targets priorities and projects that are specifically relevant to its remit. Therefore, it could be helpful to centralise the information on the use and impact of earmarked funding within a specific unit, through an IT system. Voluntary contributions from all state actors could be traced, providing an evidence base on when earmarked funding is the most suitable funding option.
Contributors often face the choice between earmarking funds for multilateral organisations or spending those resources bilaterally, or through another implementing agent. However, persistent levels of earmarked funding for the same overfunded programme areas and for the same multilateral organisations suggest some flexibility for contributors to re-direct hard-earmarked funds upstream. This could be achieved through more core funding or through more softly earmarking.
Note: Since there are no assessed contributions for the European Commission and the Bill and Melinda Gates Foundation, it was not possible to compute the “Programme Budget financing” indicator for these two providers. This is why, for these two providers, the metrics comprises four indicators rather than five, and the chart illustrating it is thus a quadrangle and not a pentagon.
Source: Authors based on statistical data from WHO for the 2014-15 biennium.
Overall, scattered and highly decentralised decision making on earmarked funding has hampered a comprehensive assessment of when it is the best funding option. This information and analysis is critical to inform regular discussions on the balance between core and earmarked funding. Similar discussions are already held among DAC countries to improve the overall impact of resources deployed.
Note: Numbers in the puzzle pieces indicate the related recommendation in Section 1.4
Source: Authors.
The 2030 Agenda for Sustainable Development and the SDGs call for more and better multilateral development co-operation. Multilateral organisations and contributors – i.e. founders, shareholders and funders – hold the responsibility for achieving it. A new pact on multilateralism, one founded on the recognition of this mutual responsibility, is critical to move towards a stronger and more effective multilateral system that is fit -for -purpose for achieving the 2030 Agenda.
A crucial part of this new pact is a new commitment to multilateralism, founded on a set of evidence-based principles of good multilateral donorship. Building on the evidence presented so far, this section outlines recommendations for good multilateral development co-operation. This provides a basis for an inclusive multi-stakeholder dialogue on multilateral effectiveness. Dialogue should be inclusive: while sovereign states are the main founders and stakeholders of the current multilateral development system, the greater role that other contributors are playing suggests that non-state actors could also reflect on how they could embrace such principles.
The OECD metrics on good multilateral funding presented in this report could be expanded beyond the WHO pilot to be part of the monitoring framework needed for holding both contributors and multilateral institutions accountable for such principles and forge a more effective multilateral development system. The OECD metrics could be integrated into the OECD DAC Peer Review methodology (to review donor performance) and into multilateral assessments such as MOPAN (to review multilateral organisations’ performance).
Below are nine recommandations for principles of good multilateral donorship. These are further summarised in six points at the end of the executive summary and in the inforgrafics for the report.
1. Define the objectives and modalities for engaging with multilateral organisations in light of an inclusive whole-of-government dialogue open to non-state actors and all relevant stakeholders.
2. Establish adequate co-ordination and accountability mechanisms in the administration to ensure a responsible and coherent whole-of-government approach to engagement with multilateral organisations. It will also increase the strategic focus of partnerships, which require trust, transparency and continuity.
3. Reduce the collection of primary data on the performance of multilateral organisations and instead strengthen multilateral organisations’ evaluation units as well as collective initiatives and efforts to systematically assess multilateral organisations’ performance. Use board discussions as the key platform for promoting institutional change and greater performance of multilateral organisations. Move towards assessments and results frameworks that could ultimately be aggregated over the multilateral system to identify gaps based on results.
4. Centralise information on the use and impact of earmarked funding to develop an evidence base on when and why earmarked funding may be the most suitable funding option to avoid earmarking resources for overfunded areas.
5. Using evidence on their relative effectiveness, regularly review the overall balance between core, earmarked and other bilateral funding. Assess whether some earmarked funding could be allocated to multilateral organisations upstream through core resources or through thematic windows and softly earmarked funds.
6. Increase the predictability of both core and earmarked funding by making – to the extent possible – multi-annual commitments linked to the strategic plans of multilateral organisations.
7. Support multilateral organisations to adopt measures and safeguards to ensure resources are aligned with the institutions’ mandates and the priorities of the 2030 Agenda.
8. Enhance the ability of multilateral organisations to work together effectively by promoting harmonised working practices. These can reduce the burden on developing country governments. Country platforms can identify projects and pool funds and expertise from multilateral institutions and other stakeholders.
9. Encourage contributors to investigate systemic gaps and identify imbalances in the financial capacity and functions of multilateral organisations. This will enhance the division of labour and effectiveness of the system.
References
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[7] Miyamoto, K. and E. Chiofalo (2017), “Development Co-operation for Private Sector Development: Analytical Framework and Measuring Official Development Finance”, OECD Development Co-operation Working Papers, No. 32, OECD Publishing, Paris, http://dx.doi.org/10.1787/ded2028f-en.
[3] OECD (2018), Creditor Reporting Sytem, OECD, Paris, https://stats.oecd.org/Index.aspx?DataSetCode=crs1.
[8] OECD (2013), Multilateral Aid Report, OECD, Paris, http://www.oecd.org/dac/financing-sustainable-development/development-finance-topics/2013-Multilateral-Aid-Report.pdf.
[6] Seitz, K. and J. Martens (2017), “Philanthrolateralism: private funding and corporate influence in the United Nations”, Global Policy, Vol. 8/Supplement 5, August, https://onlinelibrary.wiley.com/doi/abs/10.1111/1758-5899.12448?campaign=woletoc.
[2] United Nations (2016), Implementation of General Assembly resolution the quadrennial comprehensive policy review of operational activities for development of the United Nations system: funding analysis, http://undocs.org/E/2017/4.
[4] World Bank Group (2017), Report from the Executive Directors of the International Development Association to the Board of Governors, http://documents.worldbank.org/curated/en/348661486654455091/pdf/112728-correct-file-PUBLIC-Rpt-from-EDs-Additions-to-IDA-Resources-2-9-17-For-Disclosure.pdf (accessed on 30 October 2018).
← 2. As shown in the Charter of the United Nations, the United Nations was created: “1) To maintain international peace and security […]; 2) To develop friendly relations among nations based on respect for the principle of equal rights and self-determination of peoples, and to take other appropriate measures to strengthen universal peace; 3) To achieve international co-operation in solving international problems of an economic, social, cultural or humanitarian character, and in promoting and encouraging respect for human rights and for fundamental freedoms for all without distinction as to race, sex, language, or religion; and 4) to be a centre for harmonising the actions of nations in the attainment of these common ends.”
← 3. These included: the Inter-American Development Bank in 1959; the World Bank’s soft loan arm, the International Development Association in 1960; the African Development Bank in 1963; and the United Nations Development Programme in 1965.
← 4. These are the United Nations Development System, the International Development Association through the outcome of the 18th replenishment, and the Global Fund.
← 5. This percentage refers excludes local resources.
← 6. This finding is based on responses to the OECD/DAC “2018 Survey on Policies and Practices vis-à-vis the Multilateral Development System”. It therefore includes only respondents to the survey.
← 7. While the OECD metric presented here constitute the first attempt to use a multi-dimensional approach to measure the quality of funding provided to multilateral organisations, different multi-dimensional metrics were developed by (Birdsall and Kharas, 2010[9]) to measure the quality of ODA: QuODA. This measure provided an assessment of the quality of concessional finance provided by 35 donor countries and more than 100 aid agencies using 31 indicators grouped in 4 dimensions that reflected what was, at the time, the international consensus on high-quality aid: 1) maximising efficiency; 2) fostering institutions; 3) reducing burden; 4) transparency and learning. Another multi-dimensional metric was developed by Piera Tortora to measure delegation of authority of development aid agencies (OECD, 2013[8]).
← 8. This is evidence collected through the responses to the 2018 OECD Survey.
← 9. The Global Programme to Enhance Reproductive Health Commodity Security and the Maternal Health Thematic Fund.