Development Aid at its highest level ever in 2008

In 2008, total net official development assistance (ODA) from members of the OECD’s Development Assistance Committee (DAC) rose by 10.2% in real terms to USD 119.8 billion. This is the highest dollar figure ever recorded. It represents 0.30% of members’ combined gross national income (GNI, see Table 1 and Chart 1).

Bilateral development projects and programmes have been on a rising trend in recent years; however, they rose significantly by 12.5% in real terms in 2008 compared to 2007, indicating that donors are substantially scaling up their core aid programmes (see Chart 2).

In 2008, preliminary data show that net bilateral ODA from DAC donors to Africa totalled USD 26 billion, of which USD 22.5 billion went to sub-Saharan Africa. Excluding volatile debt relief grants, bilateral aid to Africa and sub-Saharan Africa rose by 10.6% and 10% respectively in real terms. (The increases including debt relief were 1.2% and 0.4% respectively).

Donor Performance

The largest donors in 2008, by volume, were the United States, Germany, the United Kingdom, France and Japan. Five countries exceeded the United Nations target of 0.7% of GNI: Denmark, Luxembourg, the Netherlands, Norway and Sweden.

The largest volume increases came from the United States, the United Kingdom, Spain, Germany, Japan and Canada. In addition, significant increases were recorded in Australia, Belgium, Greece, New Zealand and Portugal.

In 2008, net ODA by the United States was USD 26 billion, representing an increase of 16.8% in real terms. Its ODA/GNI ratio rose from 0.16% in 2007 to 0.18% in 2008. The United States’ net ODA levels increased to practically all regions, particularly sub-Saharan Africa (+38.3% in real terms to USD 6.5 billion). Net ODA also increased substantially to the group of Least Developed Countries (+40.5% in real terms to USD 6.9 billion), and humanitarian aid also rose significantly (+42.5% in real terms to USD 4.4 billion) due mainly to increased relief food aid.

Japan’s net ODA was USD 9.4 billion, representing an increase of 8.2% in real terms over 2007. Its net ODA/GNI ratio rose from 0.17% in 2007 to 0.18% in 2008. The increase is mainly due to a rise in contributions to international financial institutions. This reverses the downward trend in Japan’s ODA since 2000 (excluding peaks in 2005 and 2006 due to high levels of debt relief).

The combined net ODA of the fifteen members of the DAC that are EU members rose by 8.6% in real terms to USD 70.2 billion, representing 59% of all DAC ODA. As a share of GNI, net ODA from DAC-EU members rose to 0.42%.

In real terms, net ODA rose in fourteen DAC-EU countries as follows:

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Belgium (+13.4%), due to an increase in bilateral aid as well as contributions to multilateral organisations;
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Denmark (+0.3%), practically unchanged;
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Finland (+6.7%), due to the general scaling up of its aid;
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France (+2.9%), as it increased its contributions to the EC and bilateral lending;
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Germany (+5.7%), due to an increase in bilateral co-operation and larger contributions to the EC;
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Greece (+26.9%), due to an increase in bilateral aid, notably to Africa, as well as multilateral contributions to the EC and IDA;
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Ireland (+6.4%), reflecting a general scaling up of its aid in order to reach the UN target of 0.7% by 2012;
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Italy (+2.2%) due to increased debt relief;
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Luxembourg (+1.8%), reflecting an increase in bilateral aid;
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Netherlands (+4.8%), as it increased its bilateral aid;
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Portugal (+ 21.1%), due to an increase in bilateral aid, notably to Africa;
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Spain (+19.4%), reflecting increased bilateral aid, especially to Africa, as well as larger contributions to multilateral institutions;
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Sweden (+3.9%), Sweden budgets for an ODA level of 1% of GNI, but fell short this year, partly because expected debt relief did not materialise;
*
United Kingdom (+24.1%), reflecting a general scaling up of its aid.

Net ODA fell in Austria (-14.0%), due to a lower level of debt relief grants provided in 2008 compared to 2007.

Net ODA by the European Commission rose by 6.8% in real terms to USD 13.4 billion, mainly due to an increase in technical cooperation activities and humanitarian aid.

Net ODA from other DAC countries rose or fell between 2007 and 2008 as follows:

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Australia (+13.8%), reflecting an overall scaling up of its aid;
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Canada (+12.2%), due to an overall scaling up of its aid and increased contributions to the World Bank;
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New Zealand (+11.0%), reflecting an increase in bilateral ODA;
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Norway (-2.4%);
*
Switzerland (+6.5%), as it increased its bilateral aid.

On a gross basis (i.e. without any deductions for loan repayments), ODA reached USD 133.9 billion in 2008, reflecting an increase of 9.1% in real terms. The largest donors of gross ODA were the United States (USD 26.9 billion), Japan (USD 17.4 billion), Germany (USD 15.9 billion), France (USD 12.4 billion) and the United Kingdom (USD 11.8 billion) (see Table 3).

Amongst the non-DAC members, the following donors reported changes in net ODA in 2008 as follows:

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Czech Republic (-0.4%);
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Hungary (-7.4%);
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Korea (+31.5%), which plans to become a member of the DAC in 2010, increased its ODA mainly through larger contributions to regional development banks and funds;
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Poland (-9.0%), as debt relief fell;
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Slovak Republic (+14.4%).

Aid commitments within reach?

In 2005, donors committed to increase their aid at the Gleneagles G8 and UN Millennium +5 summits. The pledges made at these summits, combined with other commitments, implied lifting aid from USD 80 billion in 2004 to USD 130 billion in 2010, at constant 2004 prices.

While a few countries have slightly reduced their targets since 2005, the bulk of these commitments remain in force. However, reduced growth in 2008 and the prospect of economic contraction in 2009 reduces the dollar value of commitments expressed as a percentage of national income.

Overall, the current commitments imply an ODA level of USD 121 billion in 2010, expressed in 2004 dollars, or an increase of USD 20 billion from the 2008 level (see Chart 3). Table 4 shows these commitments in 2008 dollars.

Some further increases in aid can be expected. A new survey of donors’ forward spending plans suggests an 11% increase in programmed aid between 2008 and 2010, including larger disbursements by some multilateral agencies. Debt relief may also increase slightly as the debt of the remaining Heavily Indebted Poor Countries is treated in the Paris Club.

However, the current outlook suggests that at least USD 10-15 billion must still be added to current forward spending plans if donors are to meet their current 2010 commitments.

The 2008 ODA data as well as forward spending plans suggest that with some further effort, most donors are within reach of their 2010 targets. The countries that have already met the UN ODA target of 0.7% of GNI are expected to continue to do so.

Most other DAC members are expected to meet, or nearly meet, their 2010 targets. However, there are likely to be large shortfalls in a few countries. For example, ODA in 2008 from Austria, Italy and Greece, excluding debt relief, is well under half their ODA/GNI target for 2010.

Only a special crisis-related effort can ensure that the 2010 targets for aid are met, which is even more important now that the economic crisis is reducing developing countries’ growth prospects and their ability to make progress towards the Millennium Development Goals.

The need for aid to counter the development impact of the crisis

The current global financial crisis is having a serious impact on low income countries. World trade is experiencing its largest decline since 1929 and commodity prices, particularly for the exports of low income countries, are falling.

Foreign direct investment and other private flows are on the decline, and remittances are expected to drop significantly in 2009. Budgets of many developing countries were hit hard by the rises in food and oil prices in the last two years. Many countries are not in a strong fiscal position to address the current financial crisis.

Whilst the full effects and duration of the financial crisis are still to be seen, it is important for aid to play a countercyclical role to help balance the sharp reversal in overall flows to developing countries.

ODA has played a positive countercyclical role during some previous financial crises. After the Mexican debt crisis in 1982, commercial lending was significantly reduced for about a decade, yet ODA rose slightly during this period, playing a strong role in maintaining flows to Latin America.

However the global economic recession in the early 1990s produced large fiscal deficits in donor countries that led to deep cuts in ODA, which fell from 0.33 per cent of gross national income in 1992 to 0.22 per cent in 1997.

Aid cuts at this point in time would place a dangerous additional burden on developing countries already faced with restricted sources of income and increased poverty, and perhaps undo some of the progress already made towards meeting the Millennium Development Goals.

At the end of 2008, the OECD Secretary General, Angel Gurría, and the Chair of the DAC, Eckhard Deutscher, launched an Aid Pledge inviting DAC members to reaffirm their aid commitments, and DAC members did confirm these commitments at the OECD in November. The World Bank and IMF have more recently launched new calls for increased aid funding.

Ensuring that aid acts as a countercyclical force will require strong political priority and coordination at the global and country level. Participants of the DAC High Level Meeting will meet at the end of May to discuss the effects of the financial crisis on development in 2009 and thereafter, and how to create and support initiatives to support developing countries during the crisis.


- For more information please contact Yasmin Ahmad, email DAC.Contact@oecd.org tel: + 33 145248903 or visit www.oecd.org/dac

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