AT A GLANCE: - The global aid landscape is witnessing significant change. There are a growing number of official and private donors and an increasing array of financing methods and instruments. These new sources and forms of aid create opportunities for mobilizing more resources for development and for innovation in development finance, but they also present challenges for aid effectiveness.
- For most low-income countries, official development assistance (ODA) from the OECD’s Development Assistance Committee (DAC) members remains a major source of development finance. In Sub-Saharan Africa, home to most of these countries, official flows account for about two-thirds of all capital inflows. These countries will need a substantial increase in external assistance to improve their prospects for reaching the Millennium Development Goals (MDGs).
- In middle-income countries, aid plays a much smaller but still important role, by catalyzing reforms, supporting efforts to tackle concentrations of poverty, helping to counter negative shocks, and assisting with global or regional public goods such as climate change.
- As costly challenges such as adapting to climate change are added on top of key development problems like expanding education, reducing child mortality, tackling AIDS and malaria and ensuring access to water and sanitation, the need to scale up aid has taken on a new urgency.
- International financial institutions (IFIs) have a smaller relative financing role than in the past, yet the multilateral development banks are still expected to bring order to an increasingly crowded aid field. And, since 2008 is the halfway point to the 2015 deadline for most of the MDGs, IFIs’ impact through leverage remains key in achieving collective action on development and the increasingly important global and regional public goods such as climate change.
- At the Third High Level Forum on Aid Effectiveness (HLF3) in early September 2008 in Accra, Ghana, 130 countries and more than 30 institutions agreed on an ambitious program of actions to continue improving the effectiveness of development assistance. These same participants will then meet in Doha, Qatar, in December 2008 to follow-up on the financing for development arrangements started in Monterrey in 2002, and discussions will offer opportunities to leverage IFI influence, improve aid architecture, and scale up aid.
Overview In today’s increasingly diverse aid environment, more resources are available for poor countries and new and innovative ways of tackling pressing development needs are emerging. However, these new developments complicate efforts to achieve policy coherence and can distort national priorities in poor countries. Net official development assistance (ODA) disbursements from the DAC fell from $107.1 billion in 2005 to $103.7 billion (preliminary) in 2007. The decline reflects debt relief grants reverting back to more normal levels following the exceptionally large debt relief operations for Iraq and Nigeria. Donors’ net ODA relative to gross national income was 0.28 percent in 2007, well below the U.N. target of 0.7 percent. To reach the Gleneagles targets of an increase in aid of $50 billion (from 2004 levels) by 2010, donors will need to sharply accelerate aid disbursements. However, preliminary evidence from a forward survey of donors’ aid allocations suggests that these are not yet sufficiently ambitious to meet the 2010 aid targets. Efforts to expand aid Setting up new channels to disburse aid effectively is difficult. One of the fastest growing programs, the Global Fund for AIDS, TB and Malaria (GFATM), was able to reach $1 billion in disbursements in its fourth year of operation. Another recently established agency, the United States ’ Millennium Challenge Corporation, had committed $5.5 billion in multi-year aid compacts to 16 countries as of January 2008, but had disbursed only about $180 million. While the new channels are making a contribution, the bulk of the increase in aid flows in the short- to medium-term will have to pass through traditional channels. Donors’ funding commitments to the replenishment cycles of the World Bank’s International Development Association (IDA), which assists the world’s poorest countries, and the concessional windows of other regional development banks and GFATM are encouraging. New donor pledges for IDA 15 (covering the period mid-2008 to mid-2011) amount to $25.1 billion, representing the largest expansion in donor funding in IDA’s history and signaling strong support for IDA. The latest replenishment of GFATM also points to bigger contributions by donors. Innovative financing approaches can help raise funds for short-term needs, or provide long-term, sustainable funding for development. For example, the solidarity tax on airline tickets was introduced in France in mid-2006, and has been implemented since then in Chile, Cote d’Ivoire, Democratic Republic of Congo, Republic of Korea, Madagascar, Mauritius, Niger, and Norway. Another 15 countries are in the process of implementing the tax. The funds are used to finance UNITAID, a purchase facility for drugs and treatments for HIV/AIDS, malaria, and tuberculosis. Contributions from air ticket taxes are expected to total over $360 million in 2008. The International Finance Facility for Immunization (IFFim), which invests the majority of resources up front to support development investments, was set up in 2006 with some $4 billion in assets in the form of irrevocable donor grants paid over 20 years. IFFim’s first triple-A rated $1 billion bond issuance funded immunization programs of the Global Alliance for Vaccines and Immunizations, or GAVI. New players such as non-DAC bilaterals, private entities, non-governmental organizations, and vertical funds are the fastest growing sources of funds. Nations like Brazil, China, India, Korea, and Middle East and OPEC countries are all providing sizable amounts of aid and plan to increase their contributions in the run-up to 2015. Private players, meanwhile, are providing significant sums of money to complement official aid and prospects for continued strong expansion are good. For example, the Gates Foundation alone disbursed over $1 billion in 2006 and the outlook is for a ramping up of disbursements to about $3 billion annually in a few years. Leveraging through the international financial institutions Because they now account for only 8 percent of net ODA, the true measure of the impact of IFIs is increasingly about leverage. This means institutions like the World Bank and International Monetary Fund have to achieve collective action and implement an ever-more important global and regional public goods agenda. As part of this, the IFIs should be assessed on results, on policy change at the country level, on institutional learning, on harmonization and improved effectiveness of the aid architecture. In 2007, IFIs shifted their strategies in response to the changed global environment. They defined new priorities for diverse clients, introduced new lending and non-lending instruments, and added more emphasis to regional and global public goods to complement their country-based approaches. At the same time, the IFIs continue to play their traditional roles in (a) helping countries manage market turbulence and high and volatile commodity prices, as at present, and (b) providing financing, knowledge, and technical assistance to countries. MDB operations increased in volume in 2007, with a record $49 billion of gross disbursements, reflecting higher concessional flows and non-concessional, non-guaranteed flows to the private sector. Total net non-concessional flows turned slightly positive in 2007 after four years of large negative net flows. Additional financing was provided by the leverage obtained through co-financing and guarantee operations, which have been growing. The IDA settlement constitutes a significant achievement, and should sustain the IFIs’ recent increase in concessional flows to poor countries. Growth in MDBs’ non-sovereign, non-guaranteed disbursements shows a shift towards greater support for the private sector. Africa, Asia, infrastructure, and higher education are areas seeing the most rapid increase in financial support. The IFIs are devoting large and growing amounts of their own and trust-funded resources to knowledge activities, and are decentralizing operations to strengthen dissemination. But the practical experiences of middle-income developing countries are only just starting to be tapped. There appears to be strong demand for IFI knowledge services from all types of clients, but the business model for financing knowledge needs to evolve. IFI results improved in 2007, in terms of selectivity, harmonization, and managing for results. But much remains to be done in terms of strengthening relevance and enhancing support to meet the MDGs. Improving aid effectiveness Following up on the 2005 Paris Declaration on Aid Effectiveness, the international community met in Accra in September 2008 for the Third High Level Forum. The Forum built on many regional and thematic meetings and consultations, both with donor governments and institutions and partner countries, and with Civil Society Organizations. Evidence from a comprehensive Progress Report underpinned the debates in Accra. Participants agreed that progress has been made in reforming the way aid is delivered and managed at the country level, but that this progress has not been sufficiently fast or extensive. Acknowledging that much more needs to be done, participants agreed on an Accra Agenda for Action, or AAA, which lays out actions to deepen the aid reforms. In particular, new and ambitious commitments have been made to increase the transparency and predictability of aid flows, to further untie aid, and to improve the management of technical assistance. Actions have also been agreed on the use of country systems, which donors must now consider as the first option, transparently stating why they would not use them, as well as on anti-corruption measures and improved division of labor between donors at the country level. The AAA recognizes Civil Society Organizations as development actors in their own right, and invites them to reflect on how they can apply the Paris Declaration principles of aid effectiveness. Similarly, the AAA welcomes the contribution of South-South donors, their particular approach and their important role in international development cooperation. It calls upon all global funds to apply the Paris Declaration principles in their action. The international community will now focus on implementing and monitoring these new commitments with a view to assessing progress on aid effectiveness in 2011 at the Fourth High Level Forum. Media Contact: Merrell J. Tuck-Primdahl (202) 473-9516 E-mail: mtuckprimdahl@worldbank.org Updated September 2008 |
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