The ongoing debate on the reform of the definition of Official Development Assistance

By Simon Scott

I thank Ms Moorehead for her response, which does not, however, persuade me to change my mind.

Granted, the DAC total for 2018 on the “new ODA” basis is only slightly higher than the “old ODA” figure. But this is not as reassuring as it seems. For a start, France and Germany have for several years now been including loans with no explicit subsidy in their ODA anyway (paragraph 9 here). So their figures are too high on both measures. In fact, for reasons given on page 12 here, they are at present even more inflated on the old measure than the new one. This helps reduce the excess that other countries show on the “new ODA” figures. Japan, for example, scores $4 billion, or 41%, more on the “new ODA” than on the old.

More importantly, Ms Moorehead’s observations do not address the serious logical flaws in the “new ODA”. That measure does indeed add apples and pears, i.e. flows for some items, and grant equivalents for others. As these represent two fundamentally different concepts, their sum is meaningless. Moreover, for any individual loan, its grant equivalent must be reported if it is to the official sector, but its flow must be reported if it is to the private sector. This makes no sense. Furthermore, all transactions with the private sector can be reported either as net subsidies into the donor agency, or as net outflows from that agency to developing countries, or not at all – which, again, leads to meaningless totals.

Moreover, these defective provisions will generate further anomalies and inconsistencies whenever loans are rescheduled, forgiven, or transferred between public and private sectors. So the problems will get worse, and the data become more artificial and opaque, the longer the current system persists.

While NGOs and former DAC chairs have been drawing attention to potential problems with the new ODA measure for some time, public reaction has been muted. This is understandable, since until April this year, the old figures remained the standard. And even then, only broad aggregates were available on the new basis. No one is yet able to see, at the level of individual transactions, how the “new ODA” distorts the nature and magnitude of financial flows to developing countries.

That will change at the end of this year when detailed figures on the “new ODA” basis are published for the first time. From then on, users will start to see, at the level of individual transactions, how the “new ODA” overcounts aid in ways that would be recognised as unfair or dishonest in other contexts. If, on my tax return, I declared the losses on my investments but not the profits, the taxman could prosecute me for fraud. But the new ODA rules positively require such behaviour when reporting on ODA investments. On the other hand, if I could get a mortgage from a private bank at 2 percent, but took one from a government bank at 2 percent, I would not expect the government to tell me that I should have paid 6, 7 or 9 percent, and have therefore received the equivalent of a massive upfront gift. Yet that is what developing country governments will now be told under the new ODA rules.

It is also disappointing to hear no specific plans to publish documents for, and reports of, DAC statistical meetings, in defiance of the OECD’s adherence to the Principles of International Statitical Activities. Without greater transparency, and clear recognition of the existing problems, it is difficult to see how the DAC can satisfactorily resolve what Ms Moorehead refers to as the “unfinished business” of “a long-term resolution of how to account for private finance instruments and debt relief”.

To be blunt, the new ODA rules are shambolic and corrupt. In the long run, they cannot stand. In the meantime, users should treat the resulting figures with extreme caution, bearing in mind the tricks I have described. In particular, they should be aware that countries’ headline ODA/GNI ratios are no longer on the established, UN-mandated basis, and that the DAC refuses to publish these figures.


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