OECD explanation
OECD, 2008, Is it ODA?, https://www.oecd.org/dac/stats/34086975.pdf
This note helps donors to decide whether a particular expenditure qualifies as official development assistance (ODA). It supplements the Development Assistance Committee (DAC) Statistical Reporting Directives.
Is it ODA?
DAC Members occasionally request the Secretariat’s view as to whether a particular expenditure should be reported as official development assistance (ODA). This paper outlines the reasoning the Secretariat uses to answer such enquiries, and discusses some specific cases. It should not be taken as a definitive guide to ODA eligibility, since only the DAC may determine such eligibility. Further details are provided in the Statistical Reporting Directives (available at www.oecd.org/dac/stats/dac/directives).
Official development assistance is defined as those flows to countries and territories on the DAC List of ODA Recipients (available at www.oecd.org/dac/stats/daclist) and to multilateral development institutions which are:
provided by official agencies, including state and local governments, or by their executive agencies; and
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).1 JECTIVE
This is often the decisive criterion for determining ODA eligibility. In the final analysis it is a matter of intention. But in order to reduce the scope for subjective interpretations and promote comparable reporting, Members have agreed to limits on ODA reporting, e.g.:
Exclusion of military aid – The supply of military equipment and services, and the forgiveness of debts incurred for military purposes, are not reportable as ODA. On the other hand, additional costs incurred for the use of the donor’s military forces to deliver humanitarian aid or perform development services are ODA-eligible.
Peacekeeping – The enforcement aspects of peacekeeping are not reportable as ODA. However, ODA does include the net bilateral costs to donors of carrying out the following activities within UN-administered or UN-approved peace operations: human rights, election monitoring, rehabilitation of demobilised soldiers and of national infrastructure, monitoring and training of administrators, including customs and police officers, advice on economic stabilisation, repatriation and demobilisation of soldiers, weapons disposal and mine removal. (Net bilateral costs means the extra costs of assigning personnel to these activities, net of the costs of stationing them at home, and of any compensation received from the UN.) Similar activities conducted for developmental reasons outside UN peace operations are also reportable as ODA, but not recorded against the peacekeeping code. Activities carried out for non-developmental reasons, e.g. mine clearance to allow military training, are not reportable as ODA.
Civil police work – Expenditure on police training is reportable as ODA, unless the training relates to paramilitary functions such as counter-insurgency work or intelligence gathering on terrorism. The supply of the donor’s police services to control civil disobedience is not reportable.
Social and cultural programmes – As with police work, a distinction is drawn between building developing countries’ capacity (ODA-eligible) and one-off interventions (not ODA-eligible). Thus, the promotion of museums, libraries, art and music schools, and sports training facilities and venues counts as ODA, whereas sponsoring concert tours or athletes’ travel costs does not. Cultural programmes in developing countries whose main purpose is to promote the culture or values of the donor are not reportable as ODA.
Assistance to refugees – Assistance to refugees in developing countries is reportable as ODA. Temporary assistance to refugees from developing countries arriving in donor countries is reportable as ODA during the first 12 months of stay, and all costs associated with eventual repatriation to the developing country of origin are also reportable.
Nuclear energy – The peaceful use of nuclear energy, including construction of nuclear power plants, nuclear safety and the medical use of radioisotopes, is ODA-eligible. Military applications of nuclear energy and nuclear non-proliferation activities are not.
Research – Only research directly and primarily relevant to the problems of developing countries may be counted as ODA. This includes research into tropical diseases and developing crops designed for developing country conditions. The costs may still be counted as ODA if the research is carried out in a developed country.
OF AID TO MULTILATERALS AND NGOS
Annex 2 of the Statistical Reporting Directives lists those international agencies contributions to which are reportable as ODA. ODA coefficients are provided for United Nations agencies which conduct part of their activities in favour of development. These coefficients are revised every few years in consultation with the agencies concerned.
United Nations agencies have established many specific-purpose funds. These are too numerous, and arise and disappear too quickly, to be listed in the Directives. The same applies to national non-governmental organisations. In both cases, Members must use their judgement as to whether contributions have an ODA character2. When in doubt, they may consult the Secretariat, at dac. contact@oecd.org providing details of the fund in question.
The Directives also list the main international non-governmental organisations (INGOs) contributions to which are reportable as ODA. These are increasingly numerous. Where Members have contributed to INGOs not on this list, they should assess their ODA character in the light of the INGOs’ aims, programmes and membership. If they believe the contribution should be counted as ODA, they should inform the Secretariat so that Members can consider the INGO in the annual review of Annex 2.
OFFICIAL AGENCIES
Official flows comprise transactions undertaken by the official sector (i.e. Government) at their own risk and responsibility, regardless of the source of funds (taxation of or borrowing from the private sector). Official agengies include federal, state and local departments and agencies. The market-based transactions of central monetary authorities, however, do not enter into the statistics.
Sometimes one official agency subsidises another. Since the subsidy is internal to the official sector of the donor country, it is not reported as a flow. Rather, the transaction recorded is that between the subsidised agency and the developing country. If this transaction meets the other ODA criteria described in this paper, it is recorded as ODA.
Official subsidies to private firms may be recorded as other official flows (OOF). They are not considered to meet the tests of ODA, since by definition they support activities with a primarily commercial objective.
Official subsidies to private not-for-profit organisations (“non-governmental organisations”) that are active in development are reportable as ODA.
FLOWS
Flows are transfers of resources, either in cash or in the form of commodities or services. Since DAC statistics concentrate on transactions likely to have a development impact, loans for one year or less are not counted. Repayments of the principal of ODA loans count as negative flows, and are deducted to arrive at net ODA, so that by the time a loan is repaid, the net flow over the period of the loan is zero. Interest is recorded, but is not counted in the net flow statistics. Where official equity investments in a developing country are reported as ODA because of their development intention, proceeds from their later sale are recorded as negative flows, regardless of whether the purchaser is in a developed or a developing country.
Disbursements are measured on a cash basis, not an accruals basis, except that:
Some transactions not recorded as transfers in balance of payments statistics are nevertheless eligible to be recorded as ODA, since they represent an effort by the official sector in favour of development. These include the costs of developmentally relevant secondary and tertiary education and vocational training (including stipends and travel) provided to developing country nationals in the donor country, the administrative costs of ODA programmes, subsidies to non-governmental organisations, in donor refugee costs and programmes to raise development awareness in donor countries.
Capital investment in the donor country is not regarded as a flow and is therefore not eligible to be reported as ODA. This applies even to the construction and equipment of training and research facilities related to development issues. The running costs of such facilities may, however, be counted as ODA.
CONCESSIONAL IN CHARACTER
From the earliest discussions of the concept of ODA, Members agreed that it should represent an effort in favour of developing countries by the official sector. Loans at market terms were excluded. When in the early 1970s interest rates began rising sharply, it was further specified that loans could only be reported as ODA if they had a grant element of at least 25 per cent, calculated against a notional reference rate of 10 per cent per annum.
These elements remain today. In recent years, long-term interest rates in most OECD Member countries have fallen well below 10 per cent, so the 25 per cent grant element level has become easier to attain. But to qualify as ODA, loans must still be concessional in character, i.e. below market interest rates.
Where concessional and non-concessional financing are combined in so-called “associated financing packages”, the official and concessional elements may be reported as ODA, provided they have a grant element of at least 25 per cent. Such contributions must also meet the special concessionality tests for associated financing, which are based on market interest rates and set out in the Arrangement on Guidelines for Officially Supported Export Credits (OECD, 2008 Revision).
WIKIPEDIA/OECD Definition
Wikipedia, https://en.wikipedia.org/wiki/Official_Development_Assistance
The full definition of ODA is:
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 (using a fixed 10 percent rate of discount). By convention, ODA flows comprise contributions of donor government agencies, at all levels, to developing countries (“bilateral ODA”) and to multilateral institutions. ODA receipts comprise disbursements by bilateral donors and multilateral institutions.
— OECD, Glossary of Statistical Terms [1]
In other words, ODA needs to contain the three elements:
(a) undertaken by the official sector;
(b) with promotion of economic development and welfare as the main objective; and
(c) at concessional financial terms (if a loan, having a grant element of at least 25 per cent).
This definition is used to exclude development aid from the two other categories of aid from DAC members:
- Official Aid (OA): Flows which meet conditions of eligibility for inclusion in Official Development Assistance (ODA), other than the fact that the recipients are on Part II of the Development Assistance Committee (DAC) List of Aid Recipients.
- Other Official Flows (OOF): Transactions by the official sector with countries on the List of Aid Recipients which do not meet the conditions for eligibility as Official Development Assistance or Official Aid, either because they are not primarily aimed at development, or because they have a grant element of less than 25 per cent.
Examples:
If a donor country accords a grant or a concessional loan to Afghanistan it is classified as ODA, because it is on the Part I list.
If a donor country accords a grant or a concessional loan to Bahrain it is classified as OA, because it is on the Part II list.
If a donor country gives military assistance to any other country or territory it is classified as OOF, because it is not aimed at development.
OFFICIAL DEVELOPMENT ASSISTANCE INCLUDES TECHNICAL COOPERATION AND HUMANITARIAN AID
John Degnbol-Martinussen & Poul Engberg-Pedersen, Danish Association for International Cooperation, 2003, Aid: understanding international development cooperation, p. 56-7 (HARV1866)
In addition to financial transfers that meet these demands, technical cooperation is also included as ODA. Other financial transfers with a development goal but with a grant element of less that 25 per cent are included in DAC calculations as other official flows. Technical cooperation and transfers via NGOs are included in ODA with respect to the part that is financed by official aid organizations, whereas NGOs’ own contribution is defined as private flows together with direct investments and other commercial transfers. Humanitarian aid is included in ODA to the extent that the purpose is judged to be long-term improvements and not just emergency relief. The dividing line here is somewhat vague, however, and varies from country to country.
EXAMPLES OF PROGRAMS FUNDED THROUGH DEVELOPMENT ASSISTANCE FOR HEALTH
Adam Wagstaff & Mariam Claeson, Research Analysts, The World Bank, 2004, The Millennium Development Goals for Health: Rising to the Challenges, [https://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2004/07/15/000009486_20040715130626/Rendered/PDF/296730PAPER0Mi1ent0goals0for0health.pdf], p. 156 (HARV1867)
Development assistance to health supports a vast array of activities and services, some focused on specific diseases (polio, tuberculosis, HIV/AIDS); some on strengthening health systems (disease surveillance, training nurses and midwives); and some on particular services (reproductive and child health services). Did this assistance actually change health outcomes? Recent work from the World Bank suggests that it did. But development assistance to health does not improve health outcomes in countries where the policy environment is poor. With “good” policies and institutions (strong property rights, little corruption, an efficient bureaucracy), an extra 1 percent of GDP in aid is estimated to have lead to a decline in infant mortality of 0.9 percent. By contrast, where policies were only average, the decline was only 0.4 percent. And where policies were poor, aid is estimated to have had no significant effect on infant mortality.
TRANSFERS: EXPORT CREDITS, LOANS, FDI, ETC. ARE NOT DEVELOPMENT ASSISTANCE
John Degnbol-Martinussen & Poul Engberg-Pedersen, Danish Association for International Cooperation, 2003, Aid: understanding international development cooperation, p. 70-1 (HARV1868)
The transfers that are defined as development assistance comprise only part of the total transfers between industrialized and developing countries. The other types of transfers to developing countries consist of export credits and other short-term credits, loans on commercial terms from private and public financing institutions, direct foreign investments and portfolio investments (purchase of securities). In addition, there are special types of credit in the form of rights to draw on the International Monetary Fund. Transfers in the other direction consist primarily of interest and repayments on loans and repatriation of profits from foreign investments.
DEMOCRACY PROMOTION FAILS WITHOUT EFFECTIVE DEVELOPMENT ASSISTANCE
Stewart Patrick, Research Fellow, Center for Global Development, U.S. FOREIGN AID REFORM: WILL IT FIX WHAT IS BROKEN?, September, 2006, https://www.cgdev.org/content/publications/detail/10497, (PDAF2196)
In a similar vein, the administration’s declaration of democracy promotion as the cornerstone of U.S. global engagement �” espoused most dramatically in the National Security Strategy of 2006 �” has potentially problematic implications for U.S. development policy. Like the administration, most in the development community support the emergence of democratic, well-governed states. But they also understand that democracy promotion and institution-building are not the same thing, and that in some circumstances the latter must take priority over the former. Democracy, moreover, is not the only measure of development. While the United States and other donors should of course work for positive political change, they also need to fight poverty, hunger, hopelessness and disease in non-democracies. Finally, the emergence of democracy will require sustained — in some cases decades-long — investment, including in social sectors like health and education. In sum, promoting healthy institutions of governance is a worthy goal of foreign assistance. But it would be a mistake to subsume all U.S. foreign aid objectives in a democracy promotion agenda that may be difficult to achieve in many contexts in the short or medium term.