Did the DACDevelopment Assistance Committee (of the OECD) HLM do enough to tee up the Addis Ababa FFD?

Sorry about all the acronyms in the title. The DACDevelopment Assistance Committee (of the OECD) HLM is the annual High Level Meeting of development ministers, under the auspices of the Development Assistance Committee of the OECD. It took place in Paris on 15-16 December; the communiqué is here. The Addis Ababa FFD is the Financing for Development Conference, a key milestone on the way to both post-2015 and climate settlements. It will take place in Addis Ababa from 13-16 July: the website is here.

Why are these two linked? Because, as I have argued many times, see for example here and here, concessional finance is likely to be the key lubricant of both of the big global processes which will culminate this year. It is really hard to imagine that developing countries will sign up to ambitious, universal goals for post-2015 unless there is money on the table. And it is completely inconceivable that a climate deal will be signed without the help of large financial commitments – much larger than the $US 10.2 bn committed (for a multi-year period) before, during and after the recent climate conference in Lima, to the Green Climate Fund.

No-one expected that the HLM would announce in Paris commitments better left until July, or even September, when the SDG framework is finalised in New York, or December, when the climate talks culminate in Paris. Instead, the HLM needed to tee up Addis, with the right declaration of intent and the right moves to sort out technical issues in concessional finance.

At first sight, both jobs were done. However, I am going to argue that the HLM delivered the minimum, and that ministers are weakened as a result in the forthcoming negotiations. I propose an alternative wording at the end. In particular, the DACDevelopment Assistance Committee (of the OECD) needs to accelerate work on an alternative measure of concessional finance (the so-called TOSD), be more proactive on climate finance, and launch a review of the list of countries eligible for aid. Those jobs should be completed in time for the Addis Ababa meeting.

The HLM communiqué is reproduced at the end of this piece for ease of reference. As far as volume is concerned, paragraph 7 repeats a carefully-worded commitment to aid, which suggests aspiration without exactly spelling out new commitments (and without saying how far countries have fallen behind existing commitments); and paragraph 8 makes an important statement of principle about focusing aid more tightly on those most in need.

As far as technical adjustments are concerned, the communiqué summarises an agreement on how to treat loans in such a way as not to over-represent the concessional element (Paras 9-12 and Annex 2). It also summarises progress on a new measure of Total Official Support to Development (Paras 14-16 and Annex 3).

The first of these is a significant tightening up of past practice and represents a victory for Richard Manning, a former DACDevelopment Assistance Committee (of the OECD) Chair, who first raised the issue in the Financial Times in April 2013, arguing that  ‘the OECDOrganisation for Economic Cooperation and Development is now quietly allowing large volumes of loans to be counted as ODAOverseas Development Assistance even though they do not meet any reasonable definition of being “concessional in character”, which is the basis of the OECD’s definition of aid’. The details are complicated, but have been well-reviewed by David Roodman of the Centre for Global Development in Washington. He concludes that the new rules are a messy political compromise, with arbitrary technical rules, but that they represent an improvement. It is interesting though (footnote 2 of the communiqué), that ‘one member (was) not able to agree at this stage to apply the thresholds for LMICs and UMICs’. Someone should name names. Well, OK, I will. It was Germany.

As far as TOSD is concerned, this is work in progress, but addresses an important issue about how to recognise flows which contribute to development but which have not traditionally been counted as oda. Peace-keeping? Core contributions to UN normative agencies? Global public goods? Long-term refugee costs? The HLM communiqué summarises the current state of play as follows:

‘We agree, today, to create a TOSD measure, which will:

• • complement and not replace ODA;
  • potentially cover the totality of resource flows extended to developing countries and multilateral institutions in support of sustainable development and originating from official sources and interventions, regardless of the types of instruments used and associated terms, i.e. including both concessional and non-concessional financing provided through various instruments, such as grants, loans, equity and mezzanine finance;
  • cover activities that promote and enable sustainable development, including contributions to global public goods when these are deemed relevant for development and aligned with developing countries’ priorities;
  • make a clear distinction between official support and flows mobilised through official interventions, but also between flows and contingent liabilities; and
  • capture and report resources on a gross cash-flow basis, while also collecting and publishing net flows so as to ensure full transparency of support and flows. ‘

It is worth reading the short background note on this topic prepared for the HLM, but also some of the earlier work carried out by the DACDevelopment Assistance Committee (of the OECD) Secretariat, including a paper by Julia Benn and Suzanne Steensen, which contains this diagram illustrating what kinds of items might be included, and how they relate to oda:

Source: http://www.oecd.org/dac/stats/documentupload/DCD-DAC(2014)35-ENG.pdf

There is not much on climate in the diagram. But note especially that the new TOSD measure will not replace conventional measures. Yet.

Is all this enough? Frankly, I think ministers delivered the minimum and have actually created some problems for themselves.

First of all, and as I reported when I reviewed the UN Secretary General’s Synthesis Report on post-2015, published at the beginning of December, a shot was fired across the bows of the DACDevelopment Assistance Committee (of the OECD) on the question of who exactly is responsible for defining oda and other aspects of development finance. The SG specifically stated that  ‘any effort to modernize oda and measures of development finance should be considered in an open and transparent forum with the widest possible participation of donor and recipient countries and other relevant stakeholders’ (Para 99).I don’t myself think that inviting lots of developing country and UN observers to the HLM quite counts as meeting this test. What a pity the HLM communiqué did not, for example, explicitly reference the UN’s Development Cooperation Forum, and perhaps commit specifically to asking that the FFD Conference in Addis ‘endorse’ or ‘recognise’  the new definitions.

Second, the UN Secretary General also had firm things to say about climate finance, calling for the often independent financing frameworks that developed respectively from Monterrey (on development) and Rio (on sustainability (including climate?)) to be unified (Para 87); also for a coherent and agreed framework that accounts for climate finance and oda (Para 110). None of this is properly picked up in the HLM communiqué, which has only one reference to climate, and suggests only that funding of environment and other public goods will be considered in the context of the TOSD discussion, and that only after the final shape of the post-2015 agenda has been agreed. But won’t that agreement depend on having sorted out how climate finance relates to other finance, especially the extent to which it is ‘new and additional’?

Third, the TOSD debate raises some important issues about the treatment of items which might or might not fall within future definitions of oda – in particular those items which shade from blue into other colours in the Benn/Steensen diagram above. Leaving those to be settled until 2016 may well offer hostages to fortune in 2015.

Fourth, the HLM might have decided, but obviously decided not, to pick up innovative ideas from the DAC’s own report on mobilising resources for sustainable development, published at the beginning of October, in the shape of the annual Development Cooperation Report. Read my review here. For example, the report suggested that half of all oda should go to least developed countries (LDCs). Instead, the HLM stated merely that donors should ‘reverse the declining trend of aid to LDCs, recalling the specific UN target of 0.15% – 0.20% of GNI as ODAOverseas Development Assistance allocated to LDCs’. Similarly, the DCR contained a recommendation that 2% of rich country GNI should be allocated to international cooperation. That suggestion is met by silence.

Fifth, and to move outside the circle of official documents, recent contributions have made other suggestions about what the DACDevelopment Assistance Committee (of the OECD) calls ‘smart aid’ that the HLM might have picked up. For example, and to choose one among many, Kharas, Prizzon and Rogerson have published a road-map towards financing the post-2015 sustainable development goals.

Considering issues of growth and graduation, the authors identify a ‘clear ‘missing middle’ pattern, whereby just as many countries start to emerge from very low income, their growth is constrained as domestic taxes and foreign private and market-related public borrowing all fail to expand fast enough (and some to expand at all) to compensate for concessional assistance. The latter simply falls too quickly in relation to desirable public development investments.’ The figure below makes this point:

Source: http://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/9374.pdf

In this context, the authors observe that

‘Of some 190 countries attending (the FFD Conference), perhaps 30 have long been, and will likely remain, chronic ‘donors’ through 2030, and up to another 30 are likely to remain chronically ‘aid-dependent’ through that horizon. However, a whopping 130 or more fit into neither category: if that crushing majority is not convinced they have a real stake in the proposals put forward, nothing of lasting value will occur.’

This analysis turns into a set of recommendations regarding development finance, some of which are about the private sector, but some of which relate to concessional finance (including on how to incentivise the private sector). This is their summary:

Source: http://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/9374.pdf

Note especially the call to boost market-related lending by MDBs, and the possibly controversial statement that

‘grant aid for climate change should be reserved as far as possible for adaptation. This is to preclude diversion of grants to middle-income countries, in the likely event that large-scale ‘new and additional’ concessional assistance resources are not in fact raised for mitigation for some years to come. Adaptation funding should meanwhile continue to target those most vulnerable to climate change, notably LDCs and SIDS, for whom we propose a new international threshold of 50% of public concessional adaptation assistance. To the extent that grants are provided for mitigation, they should be used for demonstration purposes in less developed/less creditworthy countries, with market-related publicly intermediated loans, at current low interest rates, leveraging private resources for the rest.’

It is interesting to ask whether these recommendations offer enough to give the 130 countries referred to a ‘real stake’ in financing for development. My guess would be ‘No’.

Finally, what else can we add? I have one or two bees in my own bonnet. Personally, I think the DACDevelopment Assistance Committee (of the OECD) should bite the bullet on the list of oda-eligible countries and eliminate upper middle income countries from the list of those eligible to receive development aid. There are now 55 countries on this list (below), some of which are even candidate members of the OECDOrganisation for Economic Cooperation and Development itself. That is ironic when the OECDOrganisation for Economic Cooperation and Development is often described as the ‘rich country club’. I agree with those who say that per capita income alone should not be the only criterion of aid eligibility, and would prefer indicators such as tax-raising potential, foreign exchange reserves and debt sustainability, as well as level of poverty. However, if per capita income is to be the criterion, there are many countries on this list who do not need traditional oda. It is worth noting that UMICs still receive some 16% of oda, and from DACDevelopment Assistance Committee (of the OECD) EU member States as much as 23% (figures for 2011-12, from DACDevelopment Assistance Committee (of the OECD) Development Cooperation Review 2014)

Source: http://data.worldbank.org/about/country-and-lending-groups#Upper_middle_income

On the other hand, all ‘developing’ countries, including UMICs, could legitimately claim a share of climate finance, perhaps as concessional loans, as Kharas et al propose, or as grants. In principle, climate finance should be new and additional, but in practice, this is unlikely to be the case. That means some oda is and will be used for climate finance – and therefore be directed to UMICs. However, I think it would be advisable to separate the funds, so that a share of oda is reserved for development and poverty reduction, to be directed to low income and lower middle income countries (and perhaps exceptionally to fragile states that do not fit into these categories). A further share could be reserved for spending on global public goods, including climate, and be open to all developing countries. Probably, humanitarian aid should be treated in the same way, and perhaps also some aid through NGOs. Otherwise, there is a real risk that UMICs will continue to receive a disproportionate share of oda.

I can see, of course, that differentiating oda recipients in this way would be divisive and difficult; and accept that rigorous rules about concentration of aid on the poorest countries could deliver the same outcome. However, what we have from the HLM is couched in aspirational terms rather than as rules.

Do we think that is enough? Probably not. The EU, for example, see below, spent nearly twice as much in UMICs in 2012 as it did in either fragile states or lower middle income countries. Also, of its ten biggest recipients in 2012, five were UMICs. Turkey alone received over a fifth of EUEuropean Union oda. In total, the top ten received 49% of EUEuropean Union oda.

Of course, this allocation outcome is an artefact, in that separate instruments exist in the EU’s Multi-annual Financial Framework to support neighbourhood countries. It is not an explicit outcome of development aid programming. But, nevertheless, the result is to distort oda spending – and this will not change as a result of exhortation by the DAC. That is why the list of oda-eligible countries needs to be revisited.

Source: http://www.keepeek.com/Digital-Asset-Management/oecd/development/development-co-operation-report-2014/european-union-institutions_dcr-2014-34-en#page5

Now, why do I think that all this needs to be sorted out sooner rather than later? And why is it that ministers have made their lives more difficult by not acting more quickly? The answer lies in the politics of the negotiations which will take place in 2015, and in the need for ministers to make substantial offers at crucial stages of the process. What the HLM has said is that the concessional offer will essentially be limited to traditional oda (albeit used in innovative, ‘smart’ ways), actually rather more restrictively defined than in the past, because of the way loans are to be treated, with the aspiration to reach 0.7, and with relatively modest targets, again aspirational, for further concentration on the poorest countries. The package is offered ex cathedra, with no reference to the UN.

That’s a start, but let’s consider the counterfactual. Here is a partial alternative HLM communiqué:

‘We recognise that the world is undergoing a great transformation and that the pace of change will need to be maintained if ambitious sustainable development goals for 2030 are to be reached. Indeed, change will need to accelerate significantly if the existential threat of climate change is to be tackled.

Concessional finance is far from the only instrument available to support transformation, but as developed countries we recognise that it will continue to be needed for traditional development purposes. In addition, we recognise the need for new and additional finance to tackle climate change and other global issues. An integrated financial framework will be needed to support the post-2015 Sustainable Development Goals.

Our current definitions and categorisations of official development assistance are not fit for purpose in this new world. We have undertaken important work on measuring and reporting the concessionality of loans. We commit to presenting the changes and seeking endorsement at the FFD Conference in Addis Ababa in July 2015.

In addition, we commit to accelerating our work on measures of Total Official Support to Development, to include support for global public goods, including action on climate change. We will bring specific proposals to the FFD Conference in Addis Ababa and will be prepared to discuss goals and targets, in the context of the post-2015 sustainable development framework.

As a contribution to this work, we commit to making proposals on the list of countries eligible for oda of different kinds and for TOSD. In particular, we expect to make proposals regarding graduation and the eligibility of Upper Middle Income countries’.

Any takers?

DAC High level Meeting Communiqué

1. We, the members of the OECDOrganisation for Economic Cooperation and Development Development Assistance Committee (DAC), convened at high level in Paris on 15-16 December 2014. We welcomed the five new members who have joined the Committee since our last High-Level Meeting in 2012: the Czech Republic, Iceland, Poland, the Slovak Republic and Slovenia. We also welcomed the United Arab Emirates as the first country beyond the OECDOrganisation for Economic Cooperation and Development membership to become a Participant of our Committee. The International Monetary Fund, the World Bank, the United Nations Development Programme, the Inter-American Development Bank and non-DAC OECDOrganisation for Economic Cooperation and Development members – Chile, Estonia, Hungary, Israel, Mexico and Turkey – participated in our deliberations.
2. We have witnessed tremendous development progress over the past 15 years. Globally, extreme poverty has been halved, substantial progress has been made toward reaching gender parity in school enrolment at all levels and in all developing regions and child mortality has been halved as has the proportion of people without access to safe water. Yet the job of ending global poverty is unfinished, and we encounter continued instability and conflict, humanitarian crises and rising inequality. Addressing all these challenges in a sustainable way requires a renewed global partnership for development.
3. We met as the world prepares the ground for the post-2015 agenda, an ambitious global framework for achieving inclusive, sustainable development for all. Three decisive events taking place next year will sharpen the vision and clarify the means of implementation underpinning this agenda: the Third International Conference on Financing for Development, the United Nations Summit for the Adoption of the Post-2015 Development Agenda, and the 21^st Conference of the Parties on the United Nations Framework Convention on Climate Change.
4. As we shape the new sustainable development goals for the post-2015 era, we want to ensure our contributions make the difference that is needed. We invite the OECDOrganisation for Economic Cooperation and Development to fully use its interdisciplinary expertise to support members and partners as they design and implement the range of policies needed to achieve these goals in all countries. This new set of goals will require both financial and non-financial means and efforts. As regards the financing challenge, a wide array of domestic and international resources – both concessional and commercial in nature – needs to be mobilised from public and private sources and from all providers. These different resources must also be used effectively, drawing on their respective comparative advantages. In this context, we welcome relevant efforts from across the OECDOrganisation for Economic Cooperation and Development on development finance, including in the areas of taxation and investment. We consider that improving global access to reliable statistics regarding all these resources will be essential for all stakeholders, including developing and provider countries, to optimally plan, allocate, use and account for development resources. Reliable statistics will also facilitate national, regional and global transparency and accountability.
5. OECD DACDevelopment Assistance Committee (of the OECD) statistics on development finance are a global public good that informs policy choices, promotes transparency and fosters accountability. Following a mandate that we adopted at the 2012 High Level Meeting, we began work to modernise our statistical system, measures and standards to ensure the integrity and comparability of data on development finance and create the right incentive mechanisms for effective resource mobilisation. We have today taken stock of progress achieved in this regard, and have taken decisions in a number of areas.
6. Official Development Assistance (ODA) will remain a crucial part of international development co-operation in implementing the post-2015 agenda, particularly for countries most in need. We also acknowledge the important role of international private flows. Domestic resources, however, will continue to be the main pillar of development finance for the broad majority of developing countries.
7. We note that despite challenging fiscal circumstances in many OECDOrganisation for Economic Cooperation and Development countries, we have maintained high levels of ODAOverseas Development Assistance – which reached an all-time high of USD 134.8 billion in 2013. We reaffirm our respective ODAOverseas Development Assistance commitments, including those of us who have endorsed the UN target of 0.7 per cent of Gross National Income (GNI) as ODAOverseas Development Assistance to developing countries, and agree to continue to make all efforts to achieve them.
8. We also agree to allocate more of total ODAOverseas Development Assistance to countries most in need, such as least developed countries (LDCs), low-income countries, small island developing states, land-locked developing countries and fragile and conflict-affected states. We have agreed today to commit to reversing the declining trend of ODAOverseas Development Assistance to LDCs. Those members who have committed to the specific UN target of 0.15-0.20 per cent of GNI as ODAOverseas Development Assistance towards these countries reconfirm their commitment. We underscore the importance of collective action and individual steps to better target ODAOverseas Development Assistance towards countries most in need (See Annex 1). We will monitor progress in line with each member’s commitments through the OECDOrganisation for Economic Cooperation and Development peer review process, and additionally on an aggregate DACDevelopment Assistance Committee (of the OECD) level at our senior level meetings.
9. In line with the 2012 High Level Meeting mandate, we have carefully examined how the ODAOverseas Development Assistance measure could be strengthened to reflect the nature of today’s development co-operation and to better address current and future development challenges, while maintaining its core character. We remain committed to maintaining the integrity of the ODAOverseas Development Assistance definition and further strengthening transparency regarding its measurement and use, including through defining clearly concessionality and updating the reporting guidance on peace and security expenditures. We also recognise that ODAOverseas Development Assistance can help bring in private investment to support development, and that it is essential to capture the breadth of official support provided to developing countries.
10. While most ODAOverseas Development Assistance is provided in the form of grants, concessional loans form an important part of the measure. However, differences have developed in the way members interpret the unclear “concessional in character” criterion of the ODAOverseas Development Assistance definition. We therefore agree to modernise the reporting of concessional loans to make it easier to compare the effort involved with that in providing grants, by introducing a grant equivalent system for the purpose of calculating ODAOverseas Development Assistance figures. This means that under the new reporting system, ODAOverseas Development Assistance credit counted and reported will be higher for a grant than for a loan. Furthermore, among loans which pass the tests for ODAOverseas Development Assistance scoring, more concessional loans will earn greater ODAOverseas Development Assistance credit than less concessional loans. Alongside reporting on a grant equivalent basis, ODAOverseas Development Assistance figures will continue to be calculated, reported and published on the previous cash-flow system. This means that data on actual disbursements and repayments of loans will continue to be collected and published in a fully transparent manner.
11. We have further decided to assess concessionality based on differentiated discount rates, consisting of a base factor, which will be the IMFInternational Monetary Fund discount rate (currently 5%), and an adjustment factor of 1% for UMICs, 2% for LMICs and 4% for LDCs and other LICs. This system, combined with a grant equivalent method, is expected to incentivise lending on highly concessional terms to LDCs and other LICs. To ensure that loans to LDCs and other LICs are provided at highly concessional terms, only loans with a grant element of at least 45% will be reportable as ODA. Loans to LMICs need to have a grant element of at least 15%, and those to UMICs of at least 10%, in order to be reportable as ODA.²
12. Consistent with our commitment to pay particular attention to debt sustainability when extending loans to developing countries, we agree that loans whose terms are not consistent with the IMFInternational Monetary Fund Debt Limits Policy and/or the World Bank’s Non-Concessional Borrowing Policy will not be reportable as ODA. We request the WP-STAT to prepare the revised Reporting Directives, in accordance with our agreement further detailed in Annex 2, for endorsement by the DACDevelopment Assistance Committee (of the OECD) by the end of 2015.
13. We recognise the importance of strengthening private sector engagement in development and we want to encourage the use of ODAOverseas Development Assistance to mobilise additional private sector resources for development. We recognise that the present statistical reporting system does not fully reflect the changing way in which members are engaging with the private sector, nor does it incentivise innovation. We take note of progress already made in developing a modern taxonomy of financial instruments, and methodologies to measure private sector resources mobilised, for example through guarantees. We agree to urgently undertake further work to reflect in ODAOverseas Development Assistance the effort of the official sector in catalysing private sector investment in effective development. In doing so, we will explore further the institutional and instrument-specific approaches that have been developed by members, and potentially other approaches, with the aim of concluding at our next meeting. We will continue to collaborate with agencies with special expertise in this field, such as donors’ Development Finance Institutions and other bilateral institutions that use private-sector instruments, and similar multilateral institutions.
14. The development agenda is becoming broader. It is therefore important to recognise and further incentivise the efforts that are being made above and beyond ODA. Accordingly, we agree to continue to develop the new statistical measure, with the working title of Total Official support for Sustainable Development (TOSD). This measure will complement, not replace, the ODAOverseas Development Assistance measure. It will potentially cover the totality of resource flows extended to developing countries and multilateral institutions in support of sustainable development and originating from official sources and interventions, regardless of the types of instruments used and associated terms. (See Annex 3). The components of this measure have been discussed and will be refined, working with all relevant stakeholders, in the lead-up to the Third International Conference on Financing for Development in Addis Ababa. Its ultimate parameters will be clarified once the post-2015 agenda has been agreed. We will also collect data on resources mobilised by official interventions from the private sector using leveraging instruments such as guarantees. We support continued work to establish an international standard for measuring the volume of private finance mobilised by official interventions and want to explore whether and how this could be reflected in a new measure.
15. Supporting developing countries to optimally use the increased diversity of funding sources that they can access today will be important. The transparency of resource flows reaching developing countries plays a role in enhancing the effectiveness of development co-operation. We will therefore strengthen our dialogue with developing countries to ensure that our statistical system contributes to meeting their information and planning needs. Further, we will continue to develop our systems for measuring resource inflows to developing countries, building on our longstanding work with country programmable aid.
16. Recognising that building peaceful and inclusive societies will be an increasingly important part of the development agenda, we will generate greater political momentum in support of peacebuilding and statebuilding efforts. We agree to further explore how support in this area could be better reflected in our statistical system through a possible broader recognition in TOSD, and through updating ODAOverseas Development Assistance reporting instructions. In doing so, we will ensure that the main objective of ODAOverseas Development Assistance remains the promotion of the economic development and welfare of developing countries. We aim to complete this work in time for our next meeting.
17. We have come some distance in our efforts to upgrade and modernise our statistical systems and tools in order for them to contribute to monitoring the financing framework underpinning the post-2015 agenda. By implementing these changes, we reaffirm our commitment to remain the centre of excellence of high-quality statistics on official development finance. We will explore ways of engaging more systematically with other stakeholders (e.g. partner countries, other providers of development finance, foundations, civil society, private sector, the United Nations and other international organisations) in the further development and use of our statistical system, measures and standards. We welcome the reporting of development co-operation data from an increasing number of sovereign states beyond DACDevelopment Assistance Committee (of the OECD) members (such as European Union Member States, Israel, Kuwait, Liechtenstein, the Russian Federation, Saudi Arabia, Thailand, Turkey, and the United Arab Emirates) as well as other development actors (including the Bill and Melinda Gates Foundation and more than 30 multilateral institutions), and encourage other providers to follow their example.
18. We strongly support the work of the Global Partnership for Effective Development Co-operation (GPEDC), agreed in Busan, as a leading international policy platform and a hub to “share, support and spread development success”, including through the contribution of voluntary initiatives and building blocks. We believe the GPEDC’s flexible, multi-stakeholder, action-focussed approach means that it can play a useful role in helping to implement the post-2015 agenda. We stand ready – with other international fora such as the Development Cooperation Forum – to drive efforts at the international level to anchor the quality of co-operation and the development effectiveness principles in the post-2015 agenda, and at country level to foster learning and exchange of experience in achieving sustainable development results. We reaffirm our existing aid and development effectiveness commitments and resolve to further engage with other providers. We note that a strengthened GPEDC monitoring framework can be a useful tool to measure and report on progress in support of future efforts to implement the post-2015 agenda at developing country level.
19. We look forward to actively contributing to the UN-led process to shape the ambitious post-2015 agenda, and the renewed global partnership to support its implementation, including the future accountability and monitoring system. We will engage with international, regional and local initiatives and actions for a successful outcome of the decisive meetings in 2015.
20. We will reconvene end-2015/early-2016 to take stock of progress in implementing the decisions we have taken today, and in carrying out additional analytical work to bring to closure our effort to modernise the DACDevelopment Assistance Committee (of the OECD) statistical system for the post-2015 era.

Annex 1: Measures to improve the targeting of aid to countries most in need

1. We, DACDevelopment Assistance Committee (of the OECD) members, agree to allocate more of total ODAOverseas Development Assistance to developing countries most in need, such as least developed countries (LDCs), low-income countries, small island developing states, land-locked developing countries and fragile and conflict-affected states. We will strive to achieve this goal together, through both collective efforts and individual actions. Our collective and individual efforts will take into account our specific circumstances and previous commitments.

1. We also recognise the importance of complementary measures to help countries most in need. These include measures such as incentivising more ODAOverseas Development Assistance and ensuring softer terms and conditions for finance. These are key elements of our ongoing reform on concessionality. We are also putting particular emphasis on mobilising additional resources, both external and domestic, for development and using ODAOverseas Development Assistance in a catalytic way so that it helps leverage domestic policies for greatest impact.

1. We acknowledge the effort of the following DACDevelopment Assistance Committee (of the OECD) member countries who have committed to and met the UN target for ODAOverseas Development Assistance to LDCs in 2012: Denmark, Ireland, Luxembourg, Norway and Sweden (above 0.20% of GNI as ODAOverseas Development Assistance to LDCs), and Finland, the Netherlands and the United Kingdom (between 0.15% and 0.20% of GNI as ODAOverseas Development Assistance to LDCs).

1. Collectively, we agree to:

• reverse the declining trend of aid to LDCs, recalling the specific UN target of 0.15% – 0.20% of GNI as ODAOverseas Development Assistance allocated to LDCs. We reaffirm our respective ODAOverseas Development Assistance targets, including those who have committed to the UN target of 0.7% ODA/GNI target and the UN LDC target, and reaffirm our strong commitment to achieve them.
• enhance the monitoring and visibility of members’ performance in providing support to countries most in need through regular assessments, both individually through DACDevelopment Assistance Committee (of the OECD) peer reviews and collectively on the occasion of senior level meetings.
• undertake more analytical work to help identify countries where ODAOverseas Development Assistance is most needed and where additional actions may be required. This could include issues such as under-aided countries, aspects related to fragility and vulnerability, including in LDCs and small island developing states, as well as questions of changing poverty patterns. This work will be done in collaboration with other development actors including the UN system.
• promote the effectiveness and quality of ODAOverseas Development Assistance through the monitoring of the impact of different channels, instruments and modalities in various contexts and for different purposes across countries, including in countries most in need. This includes measures to promote regional connectivity and capacity for domestic resource mobilisation.

5. A number of DACDevelopment Assistance Committee (of the OECD) members also commit to additional measures to better target their support to countries most in need as a step towards achieving their commitments. The DACDevelopment Assistance Committee (of the OECD) will establish a compendium of such measures from this day forward, and will make it publicly available.

Annex 2: Modernising the reporting on concessional loans in DACDevelopment Assistance Committee (of the OECD) statistics

In line with the 2012 HLM mandate, the DACDevelopment Assistance Committee (of the OECD) has worked on options to revise the treatment of loan concessionality in DACDevelopment Assistance Committee (of the OECD) statistics, taking into account the resource allocation, mobilisation and accountability objectives of the general reform of the system for measuring development finance post-2015. The revised system should:

• provide a fairer picture of donor effort, ensuring comparability of resulting statistics across members;

• encourage lending practices that are aligned with developing countries’ needs, capacities and constraints in terms of volumes, concessionality levels and debt sustainability;

• strengthen the credibility and integrity of DACDevelopment Assistance Committee (of the OECD) statistics and the transparency of development co-operation.

1. Concessional loans have been an important part of ODA, actively used by a number of members, as well as by other providers of development assistance. Such loans are important instruments to finance long-term investments in economic and social infrastructure in developing countries and to address the vast financing needs for the provision of global public goods. The level of concessionality of loans needs to take into account the level of development of individual countries and their specific capacities as well as the nature of the project.
2. In recent years, some members have been scaling up their lending programmes. Concessional loans help mobilise more resources in particular for countries with limited or no access to international capital markets, including many low-income countries (LICs) and small island developing states (SIDS). Members are, though, also very concerned to avoid adding inappropriately to the debt burdens of developing countries, especially those, mostly LICs and SIDS, who have needed official debt relief in recent years. They have expressed their support for measures to ensure that lending to such countries is highly concessional, and adapted to the nature of each project and counterpart, and for safeguards to ensure debt sustainability. All members support the IMF/World Bank debt sustainability framework as a determining factor for the volume and terms of debt that should be taken on.
3. To be recognised as concessional and reportable as ODA, a loan must according to the present reporting criteria have a grant element of at least 25%, calculated at a discount rate of 10%, and be “concessional in character”. The 2012 HLM agreed to establish, as soon as possible, and at the latest by 2015, a clear, quantitative definition of “concessional in character”, in line with prevailing market conditions. It also agreed, among other things, that “the reporting of loans should withstand a critical assessment from the public, be generally consistent with the way concessionality is defined in multilateral development finance and prevent notions that ODAOverseas Development Assistance loans schemes follow a commercial logic”.
4. Concessional loans are at present counted in DACDevelopment Assistance Committee (of the OECD) statistics on a cash-flow basis, as positive ODAOverseas Development Assistance when disbursed, and as negative ODAOverseas Development Assistance when repaid. Over time, the net ODAOverseas Development Assistance effect of the loan – if repaid – is therefore zero, but in times of inflation, the real value of the repayments is substantially lower than the face value of the loan. In the present system, ODAOverseas Development Assistance in any given year may be greatly influenced by the development co-operation policies of the past.
5. To address weaknesses of current DACDevelopment Assistance Committee (of the OECD) statistics, we agree to introduce a grant equivalent system for the purpose of calculating the ODAOverseas Development Assistance figures. This means that under the new reporting system, greater credit, in terms of the amount of ODAOverseas Development Assistance scored and reported, will accrue to grants rather than loans. Among loans which pass the tests for ODAOverseas Development Assistance scoring, more concessional loans will earn greater ODAOverseas Development Assistance credit than less concessional loans.
6. The donor effort in providing a loan consists both of the funding cost of the loan and the risk associated with it. Recognising that lending to poorer countries involves greater donor effort than lending to richer countries, we have decided to assess concessionality based on differentiated discount rates. The rates will consist of a base factor, which will be the IMFInternational Monetary Fund discount rate (currently 5%), and an adjustment factor of 1% for UMICs, 2% for LMICs and 4% for LDCs and other LICs.
7. Having a higher discount rate for LDCs and other LICs, combined with a grant equivalent method whereby higher concessionality results in more ODAOverseas Development Assistance being reportable, is also expected to incentivise lending on highly concessional terms to LDCs and other LICs, and thereby to help concentrate the available ODAOverseas Development Assistance resources more on the poorest countries. This is a policy goal members support.
8. To ensure that loans to LDCs and other LICs are provided at highly concessional terms, only loans with a grant element of at least 45% will be reportable as ODA. The need for concessionality reduces as countries become richer. So we have agreed that loans to LMICs need to have a grant element of at least 15%, and those to UMICs of at least 10%, in order to be reportable as ODA.^3,4
9. Consistent with our commitment to pay particular attention to debt sustainability when extending loans to developing countries, we agree that loans whose terms are not consistent with the IMFInternational Monetary Fund Debt Limits Policy and/or the World Bank’s non- concessional borrowing policy, will not be reportable as ODA.
10. The changes will become the standard of reporting from 2018 (for which ODAOverseas Development Assistance reporting will take place in early 2019). ODAOverseas Development Assistance will be reported for 2014 on the basis of the 2013 DACDevelopment Assistance Committee (of the OECD) agreement on concessionality. It will be reported from the year 2015 (i.e. in reports issued from early 2016) to the year 2017 using both the new and the current (2013) system.
11. The discount rates and the grant element thresholds to be applied under the changes we are agreeing today will need to be regularly reviewed, reflecting changes in borrowing costs, emerging experience with risk (for example as reflected in default rates) and any need for further incentives for countries most in need. We agree to further study the basis for assessing the risks incurred in lending, and ask the OECDOrganisation for Economic Cooperation and Development to help assess different approaches proposed by members. On the basis of this analysis we may reassess the adjustment factors agreed today. Once the new system takes effect, the DACDevelopment Assistance Committee (of the OECD) will regularly assess the need for such adjustments, in particular following any change to the IMFInternational Monetary Fund rate.
12. We agree to live up to our Busan transparency commitments.
13. A considerable stock of loans that have been reported as ODAOverseas Development Assistance in the existing system will remain outstanding by the time of the change. So alongside reporting on a grant equivalent basis, ODAOverseas Development Assistance figures will continue to be calculated, reported and published on the previous cash-flow system. This means that data on actual disbursements and repayments of loans will continue to be collected and published. There will therefore be a very high degree of transparency on disbursements and reflows (payments on principal and interest), and therefore on gross and net ODAOverseas Development Assistance flows.
14. We agree that the cost of risk should not be double counted. Changing the measurement system from net flows to risk-adjusted grant equivalents will therefore also change the basis on which we report on debt relief of ODAOverseas Development Assistance loans. We have therefore agreed that the rules on reporting ODAOverseas Development Assistance debt relief will need to be updated to rule out double counting, bearing in mind the past need to encourage debt relief initiatives such as HIPCHeavily-indebted poor countries and MDRI.
15. More generally, we have also concluded that the existing regulations for reporting debt relief should expire with the reporting of 2017 flows, and be replaced by new regulations reflecting our agreement today.
16. The WP-STAT is requested to prepare the revised Reporting Directives for endorsement by the DACDevelopment Assistance Committee (of the OECD) by the end of 2015, including looking at options to improve the timeliness of reporting.

Annex 3: Developing a new measure - Total Official support for Sustainable Development

1. We, DACDevelopment Assistance Committee (of the OECD) members, recognise that the development agenda is broad and complex and that we need to mobilise resources and expertise to address related challenges.
2. We agree, therefore, that there is a need to capture in OECDOrganisation for Economic Cooperation and Development DAC statistics the wide array of support we are providing beyond concessional finance through a measure of Total Official support for Sustainable Development (working title). Such a measure would encourage visibility and understanding about development financing options and impacts, enhance transparency and foster accountability beyond ODA, and facilitate information-sharing with providers of development co-operation beyond our Committee. This will contribute to broader global efforts to monitor international resource mobilisation for implementing the post-2015 agenda.
3. We have reviewed the work carried out on this measure and express our appreciation to various stakeholders who have participated in our ongoing efforts to shape its narrative and possible components.
4. We agree, today, to create a TOSD measure, which will:

• complement and not replace ODA;

• potentially cover the totality of resource flows extended to developing countries and multilateral institutions in support of sustainable development and originating from official sources and interventions, regardless of the types of instruments used and associated terms, i.e. including both concessional and non-concessional financing provided through various instruments, such as grants, loans, equity and mezzanine finance;

• cover activities that promote and enable sustainable development, including contributions to global public goods when these are deemed relevant for development and aligned with developing countries’ priorities;

• make a clear distinction between official support and flows mobilised through official interventions, but also between flows and contingent liabilities; and

• capture and report resources on a gross cash-flow basis, while also collecting and publishing net flows so as to ensure full transparency of support and flows.

5. We agree to consult broadly with developing countries, international institutions, other providers of development co-operation and stakeholders on the scope, definition and statistical features of the measure, with the hope of contributing to a more global monitoring mechanism. We will also explore whether and how private finance mobilised by official interventions could be reflected in this new measure.
6. We will clarify the ultimate parameters once the final shape of the post-2015 agenda has been agreed. We will share the emerging features of this measure with the international community at the July 2015 Financing for Development conference in Addis Ababa, as an additional DACDevelopment Assistance Committee (of the OECD) contribution to the post-2015 monitoring framework, and use the opportunity to collect feedback on these features.

Source: http://www.oecd.org/dac/OECD%20DAC%20HLM%20Communiqué.pdf