Aid from traditional donors declined in 2006-2007, and donors will need to sharply increase ODA to meet stated commitments. New sources of aid, such as non-DAC bilaterals, private entities, and vertical funds, are significantly increasing inflows to developing countries.
Most countries in Sub-Saharan Africa depend on official flows. Scaling-up of aid to these countries is needed to meet the Millennium Development Goals (MDGs).
Debt relief (through the HIPC Initiative and the MDRI) has substantially lowered the debt burden on poor countries. However, maintaining debt sustainability post-debt relief remains an important challenge.
The increasing complexity of the aid architecture adds to the challenge of ensuring effectiveness and coherence of aid.
Aid Trends
After declining by 4.5 percent in real terms in 2006, net ODA from the 22 OECD DAC countries fell a further 8.4 percent to an estimated $103.7 billion in 2007. However, 2005 ODA was exceptionally high because it included large debt relief operations (over $19 billion to Nigeria and Iraq alone). Prospects for meeting the G8 target of increasing aid to poor countries by $50 billion from 2004 to 2010 will depend on sharply accelerating the growth of core development aid.
Developing countries, on the other hand, have made progress in strengthening development strategies and institutional frameworks for implementation. Strong performers and good candidates for scaled-up aid include Burkina Faso, Ghana, Madagascar, Mozambique, Rwanda, Tanzania, and Vietnam. Countries that could effectively use moderate increases in aid include Armenia, Bangladesh, Honduras, Kyrgyz Republic, and Mali. In recent years, a significant portion of the increase in ODA has been concentrated in a few countries.
Donors did make encouraging commitments to IDA ($25.1 billion for 2008-2011), as well as to the concessional windows of other regional development banks and the Global Fund for AIDS, TB and Malaria (GFATM).
Innovative financing approaches such as the International Finance Facility for Immunisation (IFFIm), which issued a $1 billion bond in 2006, and the solidarity tax on airline tickets, introduced in France in mid-2006 and being implemented in a number of other countries, are raising funds.
The pool of aid sources has expanded. The number of non-DAC donor countries is now nearly 30. These countries—including Brazil, China, India, Malaysia, Russia, Thailand, Venezuela, some oil-rich countries, and new EU countries—are providing an estimated $8 billion a year with increases expected. Aid from private donors was estimated at $14.6 billion in 2006. The Gates Foundation alone disbursed over $1 billion in 2006.
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Aid to Africa has risen, although much of it has been provided in the form of debt relief. Overall aid flows from DAC and multilateral donors to the region climbed to $40 billion in 2006, representing an increase of $6.9 billion in real terms over 2005 levels and $12.4 billion over 2004 amounts.
Aid fragmentation—more donors with smaller shares of total aid—is an emerging issue. OECD DAC data for 61 poor countries and fragile states show that over 60 percent of countries received aid from 20 or more different donors and over 75 percent of countries had 10 or more donors together accounting for 10 percent or less of aid. This makes strong country-led strategies more important than ever.
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Predictability of aid remains an issue, even though short-term aid predictability is improving: the Strategic Partnership with Africa survey shows that of the $2.7 billion in general budget support committed by donors for 2006, 92 percent was disbursed within the year, compared with 85 percent in 2006 and below 70 percent in 2003.
Aid for health has scaled up dramatically with support from over 100 traditional and non-traditional entities amounting to nearly $17 billion in 2006 (from $6.8 billion in 2000). Sources include new bilateral programs such as the U.S. PEPFAR, private sources such as the Gates Foundation, and global funds such as GFATM and GAVI. Overall, 15 percent of health care spending in Africa is financed externally. Although donors are bringing much-needed financing for healthcare, some of them target specific sub-sectors, which can lead to imbalances in countries’ healthcare priorities, including neglect of investment in underlying health systems.
Aid and Climate Change
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The UN Framework Convention on Climate Change (UNFCCC) estimates that by 2030 financial flows to developing countries should be in the order of $100 billion annually to finance mitigation. An amount somewhere between $28 and $67 billion will be needed for adaptation.
Under the Kyoto Protocol, the Clean Development Mechanism (CDM) has created a vibrant global carbon market reaching an estimated $30 billion in value in 2006, three times greater than in 2005. According to preliminary estimates, this growth continued in 2007. The CDM is estimated to have leveraged approximately $9.2 billion in clean technology investments in developing countries in 2006, about 48 percent of their total investments in clean technologies.
Debt Relief
As of March 2008, 33 countries were receiving debt relief under the HIPC Initiative. Of these 23 reached the completion point and were receiving the full amount of committed debt relief under the HIPC Initiative and the Multilateral Debt Relief Initiative. To date, a total of 41 countries have been identified as eligible for debt relief.
Total debt relief to be delivered to the 33 countries is currently estimated at $72 billion in end-2006 net present value terms, reducing the debt stock of these countries by nearly 90 percent. The debt service paid by these countries has declined by about 2 percentage points of GDP between 1999 and 2006, while their poverty-reducing expenditures have increased by about the same magnitude.
However, long-term debt sustainability is not ensured: only 9 of the 23 post-completion-point countries are considered at low risk of future debt distress, with the remainder being either moderate or high risk. Sustainability will require reforms to build resilience to exogenous shocks, a sound macro framework, and strong debt management.
.gif "Fig 3.4 - Top 10 Recipients of Net ODA - Small")
.gif "Fig 3.6 - Net ODA to SS Africa - Small")
.gif "Fig 3.11 - Strong Growth in Assitance for Health - Large")
 
The UN Framework Convention on Climate Change (UNFCCC) estimates that by 2030 financial flows to developing countries should be in the order of $100 billion annually to finance mitigation. An amount somewhere between $28 and $67 billion will be needed for adaptation.
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