Innovations in Aid: The End of ODA

The Center for Global Development has a new series of papers on Innovations in Aid.

The first paper, “The End of ODA” by Jean-Michel Severino and Olivier Ray, proposes a new concept of “Global Policy Finance”, to supplement (not replace, as you might think from the title of the paper) the idea of ODA.

ODA is currently defined as:

Flows of official financing administered with the promotion of the economic development and welfare of developing countries as the main objective, and which are concessional in character with a grant element of at least 25 percent.

There is both a reactionary and a progressive case for changing the definitions of aid.

The reactionary agenda is to dilute the concept of development assistance, by claiming as “aid” all sorts of other spending such as military aid or commercial loans.  For example, Carol Adelman at the Hudson Institute Center for Global Prosperity likes to include all kinds of flows in her measure of US foreign assistance – including the cost of State Department Diplomats and money sent by workers in the US to their families in developing countries.  She uses this to claim that Americans are the most generous nation (by contrast, on the measure of ODA as a share of national income, the US ranks close to the bottom of industrialised countries).

Measuring these broader flows is interesting, but we should not allow these flows to crowd out foreign aid whose purpose is to improve the lives of the poor.  The unattractive implication of Carol Adelman’s argument is that there is no need for the US to increase its foreign aid, conventionally defined, because on her measure the US is generous in other ways (eg sending military aid), and so she excuses the richest nation on earth for its relatively stingy contribution to feeding the hungry or sending children to school.

There is, however, a progressive case to be made for looking again at the definition of ODA.   In particular, the definition reinforces the notion that there is money we spend on us and money we spend on them.  On this view, ODA is the spare change that we toss the poor as we pass them by.  But this distinction is less and less meaningful.  There is a huge debate at the moment about whether and how spending on climate change adaptation and mitigation should count as aid.  Some of that spending will help people in developing countries, either directly (e.g. flood barriers) or indirectly (e.g. clean burn power stations).  Some will help people in poor countries only (e.g. new crop varieties) and some will help everyone (e.g. investment in renewable energies).  So which of that should count as aid?  Our difficulty in answering that questions alerts us that there is a problem with the increasingly old-fashioned idea that there is a clean distinction between spending for ourselves and spending for others.   When we spend money to prevent or reduce conflict, or to tackle the opium trade, or to help young men in Pakistan to get a good education, we are achieving a variety of objectives at the same time, and it is hard to be sure whether this should or should not count as ODA.

There are other, more technical problems with the definition of ODA. In particular, the 10% discount rate used to calculate whether a loan is sufficiently concessional to count as aid is ludicrously large – with the result that a lot of non-concessional loans can be counted as aid.

My only reservation about the argument put by Severino and Ray is that we may open Pandora’s Box.  There is a queue of people ready to argue that all sorts of other spending should be counted as aid (and hence take donors closer to meeting their commitment to spend 0.7% of GDP on aid).  If we concede that point, then we will lessen the pressure to spend more on aid that makes a difference to the lives of the poor.  But equally, there is a progressive agenda for change.  Severino and Ray argue that we should keep the existing definition of ODA, but supplement it with a broader measure.  That seems to me to be a sensible way forward.

1 thought on “Innovations in Aid: The End of ODA”

  1. I think this might actually worsen the problems of such assistance. How are we going to keep tabs on development spending and its effectiveness if we continually redefine what it is? Now we are having that problem with Dead Aid. It is difficult to discern what aid exactly we are talking about and it allows all sorts of misinterpretations to occur.

    I think the time has come for simply streamlining development assistance globally. Make a global fund for development, and allow it to be directed by Development Economists and stellar African statesmen who can identify with the regions’ problems and priorities. I think ODA is only effective if there is some global co-ordination to it. Slapping Africa with money left right and center simply is not working….even worse it is distracting.

    This effort will simply leave many confused and like you said open Pandora’s box. We should be seeking simpler and more coherent solutions to development problems not complicating it.

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