A Farewell to ODA? The Future of Development Finance

1. A Farewell to ODA? The Future of Development Finance Hedwig Riegler, Chair DAC Working Party on Development Finance Statistics Input to Panel Discussion organised by OeFSE 24 October 2013

2. OVERVIEW • What are the issues? • What is being discussed and by whom? • Why a new measure – what is wrong with the current ODA measure? • What reform ideas are around?

3. What are the issues? • A newdevelopmentparadigmwithnew (quantified) goalstofollow MDGs developedby international community • A financingstrategytounderpinthenewgoals • A newmeasuretomonitortheimplementation / progresstowardssetgoalsand quantitative targets • New developmentsrequiringthischange: • New sourcesoffinancing, financialinstruments, newactors • New prioritiesoffinancing (global publicgoodslikeclimatefinance) • Strongerroleby South-South Cooperationand non-DAC actors • ODA underpressure (volumesandconceptofcounting ODA) • Statistical measuretotrackdevelopmentfinancehave not keptpacewithemergingnewfinancingschemes

4. What is being discussed by whom? (1) UNITED NATIONS • UN High Level Panel (of Eminent Persons on the Post-2015 Development Agenda) – report (June 2013) outliningvisionsforeradicating extreme povertyandcreating a newdevelopmentparadigmbased on inclusive, sustainablegrowth • UN IntergovernmentalCommitteeofExperts – a financingstrategytounderpin post-2015 developmentagenda • UN decisionprocess: • Over 2014: preparationof post-2015 developmentagenda,collectionofinputs, counting on strong supportfrom UN system • Beginningof 69th UNGA session (Sept. 2014): synthesisoffullrangeofinputsavailableuntilthen • Finalisation in 2015 culminating in adoptionof post-2015 developmentagenda in a Summitat SG level (Sept 2015)

5. What is being discussed by whom? (2) OECD/DAC and its role • Operationalisationofframeworkdecisionscomingfrom UN, inputsto UN decisionprocess • Analytical worktoguidepolicydiscussionsat DAC levelandgiveinputsto UN process ; prepareforimplementation • Prepareformodernisationofstatisticalsystemsandnewmeasure(s) • Implement DAC High Level Meeting (HLM) mandateto • Elaborate proposalfornewmeasureof total officialsupportfordevelopment • Explorewaysofrepresentingboth „donoreffort“ & „recipientbenefit“ of DF • Investigatewhetheranyresultingnewmeasuresofexternal DF suggestneedtomodernisethe ODA concept Supportingimplementationof HLM mandate: DAC Expert Reference Group (ERG) – international experts (ensuringoutreachto all stakeholders) toguideanalyticalworkand DAC decisions WP-STAT – technicalanalyticalworkandpreparations, assteeredby ERG and DAC OECD and Post-2015 Reflections Website: http://www.oecd.org/dac/post-2015.htm

6. What is being discussed by whom? (3) Other Fora • Research Collaborativeon Tracking Private Climate Finance (donor-initiated forum hosted by the OECD) – analytical/research work on private climate finance • Forum of South-South Cooperation partners: RIS (Research and Information System for Developing Countries), an India-based autonomous think-tank, coordinates the SSC partner dialogue on how SSC could be incorporated in the emerging post-2105 global measure of development finance • Tidewater Meetings: “Club of big donors” discussing development finance issues and the future of ODA to develop positions (June 2013 hosted by Germany, 2014 hosted by Switzerland)

7. Why a new measure – what is wrong? • New paradigm with new (quantified) goals requires new measure(s) (re-defining purpose of measurement may be required) • Main criticisms of current measure (only one headline figure – net ODA flows - has contributed significantly to the flaws criticised) • TOO BROAD: Overestimatesactualtransfers; is a mixtureofactualtransfersand in-donor-country expenditure (nocross-borderflow); somecomponentsinflatefiguresandleadto unfair donoreffortcomparison: debtrelief, loans, refugeecosts, studyplacecosts etc.) • TOO NARROW: Fails tocapture all relevant financing, discouragesuseofmarket-likeinstruments & innovative newfinancemechanisms (e.g. guaranteesfordevelopment, front-loadingmeachanisms etc.) • WRONG FOCUS: Focus on „donoreffort/resourceinputs“ but not ensuring fair donorcomparison. Focus shouldshiftfrominputmeasurementtoresults/impactmeasurement

8. What reform ideas are around? (1)International level Wide range from radical to modest suggestions for reform • At radical end: Move from ODA (current “0.7% measure”) to total net country effort • At modest end: Keep basic ODA concept and 0.7% indicator, make some minor adjustments to statistical recording rules • Range of “in-between” proposals with different orientation: (1) “Purifying ODA” from components leading to overestimation (differing opinions on maintenance or re-definition of 0.7% ODA target)Different proposals for exclusion of elements (2) Expanding ODA definition (e.g. include full refugee costs, imputed students costs to include secondary level)

9. What reform ideas are around? (2)DAC level Reform discussion in DAC fora on 3 main questions (how to reform the 3 key dimensions of the current ODA definition): • O (Official),i.e. resources provided by official sector:Include elements (e.g. tax exemption) excluded so far? • D (Development), i.e. resources provided for development purposes:(1) Motivation/purpose: Change definition from “development-motivation” to “development relevance” or other basis (e.g. impact)?(2) Eligible recipients (developing countries): Revise list of countries eligible to receive ODA – e.g. to exclude Middle Income Countries? • A (Assistance ), i.e. resources provided at concessional terms:Contentious interpretation of existing definition of concessionality & HLM mandate to elaborate an improved (quantitative) definition by 2015 (Current definition: ODA needs to “be concessional in character and bear a grant element of at least 25% calculated at a fixed discount rate of 10%”)Concessionality definition affects not only loans but also equity, reimbursable grants, other new financing mechanisms