Foreign Aid

Question 1

Official Development Assistance (ODA)

Answer 1

OECD defintion

i. provided by official agencies, including state and local governments, or by their executive agencies; and
ii. each transaction of which:

a) is administered with the promotion of the economic development and welfare of developing countries as its main objective; and
b) is concessional in character and conveys a grant element of at least 25 per cent (calculated at a rate of discount of 10 per cent).

Question 2

ODA statistics

Answer 2

Foreign aid from official donors totalled USD 146.6 billion in 2017

The United States continued to be the largest DAC donor of net ODA (USD 35.3 billion), followed by Germany (USD 24.7 billion), the United Kingdom (USD 17.9 billion), Japan (USD 11.5 billion) and France (USD 11.4 billion).

Denmark, Luxembourg, Norway, Sweden and the United Kingdom – met the United Nations target in 2017 for an ODA/GNI ratio of at least 0.7%

Emerging or new non-DAC donors such as Brazil, China and India and Arab states are inceasingly important.

Answer 3

• Countries are providing more concessional loans and keeping aid untied
• A growing share of aid is going to humanitarian crises
• Support to refugees in DAC countries has tripled
• The share of programmable aid to developing countries is falling despite increases in ODA
• The decline in aid to least developed countries may be turning around
• Assistance to Africa, and especially sub-Saharan Africa, is falling when it needs to rise
• Multilateral funding continues to rise
• There has been little change in sector financing

Question 4

Aid flows

Answer 4

• Just under a quarter of aid goes to sub-Saharan Africa
• Just under a quarter of aid goes to least developed countries. but 14% still goes to upper midddle-income countries
• The top ten recipients (20% of total aid) are: Afghanistan; India: Vietnam; Syria; Ethopia; Indonesia; Pakistan; Jordan; Kenya; and Iraq.

Question 5

Aid modalities

Answer 5

• Project aid and technical assitance* support for a defined set of activities
• Sector budget support*, (sometimes called programme aid or sector-wide approaches) where all aid (from different donors) for a sector, such as health or education, is coordinated through a joint plan for the sector. The dialogue between donors and recipient governments focuses on sector-specificconcerns rather than on overall policy and budget priorities.
• General budget support*, through which donors simply make a contribution to the national budget at the beginning of the financial year, and all donations top up domestic sources of revenue. There is relatively little specification as to expenditures or priorities by donors.

Question 6

Paris Declaration

Answer 6

Project support and technical assitnace can result in fragmentation and high administrative and oversight costs (tranactions costs). This led to the Paris Declaration principles.

• Ownership*: partner countries exercise effective leadership over their development policies and strategies, and co-ordinate development actions.
• Alignment*: donors base their overall support on partner countries’ national development strategies, institutions and procedures.
• Harmonisation*: donors’ actions are more harmonised, transparent and collectively effective.
• Managing for results*: managing resources and improving decision-making for results.
• Mutual accountability*: donors and partners are accountable for development results.

Question 7

Aid fungibility

Answer 7

Donors want to ensure that aid is being used for the purposes for which it was given, but as aid is fungible resources intended to finance some particular expenditure can be used to finance something entirely different. Fungibility may be:

• general where aid intended for a general purpose is used for another, such as for consumption rather than investment
• categorical where aid is used for a different sector such as defence instead of health
• non-additional where even if aid resources are used for their intended purpose, there is the possibility that they may free-up the recipient government’s own (tax) resources allocated to that spending to be used elsewhere, so that allocations to the intended purpose do not increase by the full amount of aid