Lengthy discussions followed, but the OECD DAC was unable to come up with a detailed solution so agreed in 2017 on a fudge: donors could count private sector support as ODA, and the detail of what would and would not be allowed could be sorted out afterwards.Īlmost a year later, however, very little progress has been made, with the definition still a matter of dispute among donors. This would mean they could be accused of offering a subsidy, which they are not allowed to do. In 2016, export credit agencies realised that, under initial proposals from the OECD, the support they give to developed country exporters could count as ODA. This should be thought of as a subsidy, under the World Trade Organization definition of the word – it also measures a benefit to the private company, which is getting a cheap loan. Though a repaid loan will mean that donors make money overall, the grant element effectively puts a cost on additional financial risks that the donor is assuming beyond those that a private actor would assume. These rules set a formula that estimates the ‘grant element’ of the loan – the difference between the ODA-supported loan and what the cost of the same loan would have been if raised privately. One obvious solution would be to adapt the rules that cover ODA for public loans to developing countries governments, agreed in 2014. A fudged definition with no resolution in sight The challenge is how to measure the ‘official’ part of the support given to the private sector when that support looks very similar to commercial operations: loans must be repaid with interest, and hence they can make money for the DFI. In practice this largely meant finding a way to measure the ODA value of the loans, guarantees and equity investments channelled through development finance institutions (DFIs) based in donor countries. The idea was to capture the value of official support to private sector companies acting in developing countries, both domestic and foreign. In 2016, the OECD Development Assistance Committee (DAC) – the guardian of the ODA definition – agreed to introduce a new category of ODA known as ‘private sector instruments’ (PSI). Aid for the private sector: a short history The most controversial current issue is how to count ODA that is used to support private sector investments in developing countries. This basic concept has stood the test of time, but there have been continual arguments about the specifics. The acronym expresses the basic concept well: ODA is a measure of the transfer of official resources – public funds from rich country governments – devoted to development assistance – given to support the economic development and welfare of developing countries. In 1970, rich countries gave this added importance when they agreed to devote 0.7% of their gross national income as ODA, a target which has stood ever since. The standard definition of aid is ‘official development assistance’ or ODA, agreed at the Organisation for Economic Co-operation and Development (OECD) in 1969. So what is aid, and why was the UK proposal so controversial? What is official development assistance (ODA)? Many people (including myself) have criticised the suggestion by international development secretary Penny Mordaunt to count profits made through DfID’s private sector investment outfit, the CDC, as aid. ‘Aid’ is the amount of anti-poverty money rich countries give to poor countries, right?Īs last week’s furore over the UK government’s proposed change to the definition of aid shows, the reality is more complex than this.
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