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Development finance standards

Official development assistance – definition and coverage

 

The DAC has measured resource flows to developing countries since 1961.  Special attention has been given to the official and concessional part of this flow, defined as “official development assistance” (ODA).  The DAC first defined ODA in 1969, and tightened the definition in 1972.  ODA is the key measure used in practically all aid targets and assessments of aid performance.

 

 Definition of ODA

Starting with 2018 data, the new grant equivalent measure of ODA will become the standard for reporting, with the headline ODA figures published on that basis. (See below for ODA definition applicable up to 2017 data)


Definition of ODA, starting with 2018 data

 

The ODA grant equivalent is a measure of donor effort. Grants, loans and other flows entering the calculation of the ODA grant equivalent measure are referred to as ODA flows (see notes 1 and 2).

 

ODA flows (see note 3).

Official development assistance flows are defined as those flows to countries and territories on the DAC List of ODA Recipients and to multilateral development institutions which are: 

i. provided by official agencies, including state and local governments, or by their executive agencies; and

ii. 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. In DAC statistics, this implies a grant element of at least (see note 4)

• 45 per cent in the case of bilateral loans to the official sector of LDCs and other LICs (calculated at a rate of discount of 9 per cent).

• 15 per cent in the case of bilateral loans to the official sector of LMICs (calculated at a rate of discount of 7 per cent).

• 10 per cent in the case of bilateral loans to the official sector of UMICs (calculated at a rate of discount of 6 per cent).

• 10 per cent in the case of loans to multilateral institutions (see note 5) (calculated at a rate of discount of 5 per cent for global institutions and multilateral development banks, and 6 per cent for other organisations, including sub-regional organisations) (see notes 6 and 7).

 

Loans whose terms are not consistent with the IMF Debt Limits Policy and/or the World Bank’s Non-Concessional Borrowing Policy are not reportable as ODA.

 

ODA grant equivalent measure

The ODA grant equivalent measure is calculated for ODA flows, as defined above. For loans to the official sector which pass the tests for ODA scoring [conditions i) and ii) above], the grant equivalent recorded as ODA is obtained by multiplying the annual disbursements on the loan by the loan’s grant element as calculated at the time of the commitment (see notes 8 and 9).


Definition of ODA, up to 2017 data

 

The DAC defined ODA as “those flows to countries and territories on the DAC List of ODA Recipients and to multilateral institutions which are:

i. provided by official agencies, including state and local governments, or by their executive agencies; and

ii. 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).

 

Notes:

  1. -- Note on the status of DAC discussions: The HLM agreed that the headline ODA measure would no longer record the cash flows of concessional loans but their grant equivalents. For the sake of simplicity, and pending finalisation of the overall reform of the DAC statistical framework, the term “ODA flows” is used throughout the revised Directives to refer to flows the grant equivalent of which is counted in ODA. Similarly, the term “ODA loans” refers to loans the grant equivalent of which is counted in ODA.--
  2. The formulation of this paragraph will be reviewed in light of the outcomes of the HLM 2016.
  3. -- Note on the status of DAC discussions: footnote 4 will be reviewed as part of the updating of instructions on reporting on debt relief.--
  4. Except that capitalised interest included in reschedulings of ODA loans is recorded as ODA, regardless of the grant element of the rescheduling.
  5. This includes both loans in the form of core contributions to multilateral institutions (classified as multilateral ODA), loans channelled through multilateral institutions (classified as bilateral ODA), and loans to trust funds administered by these institutions.
  6. Note on the status of DAC discussions: The definition of concessionality remains to be clarified for other types of loans [e.g. loans to the private sector], and other non-grant instruments (e.g. equity). Pending clarification, the criterion “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)” remains in force for these instruments.--
  7. Discount rates consist of a base factor of 5%, which is consistent with the discount rate that IMF used in 2014 for calculating IMF grant element, and an adjustment factor of 1% for UMICs, 2% for LMICs and 4% for LDCs and other LICs. There is no adjustment factor for loans to global institutions and multilateral development banks, and an adjustment factor of 1 per cent for loans to other multilateral organisations, including sub-regional organisations. The DAC will regularly assess the need for adjusting discount rates, in particular following any change to the IMF rate.
  8. -- Note on the status of DAC discussions: The method for calculating ODA grant equivalent has so far been defined for bilateral loans to the official sector and for loans to multilaterals, not for loans to the private sector. The approach for measuring the donor effort in the use of private-sector instruments has not been agreed yet and is therefore not reflected in this interim version of the Directives.--
  9. The formulation of this paragraph will be reviewed in light of the outcomes of the HLM 2016.

 

For a detailed explanation of this definition, see What is ODA?

 

 Coverage

Over the years the DAC has continuously refined the detailed ODA reporting rules to ensure fidelity to the definition and the greatest possible consistency among donors.  The boundary of ODA has been carefully delineated in many fields, including:

  • Military aid: No military equipment or services are reportable as ODA.  Anti-terrorism activities are also excluded.  However, the cost of using donors’ armed forces to deliver humanitarian aid is eligible.
  • Peacekeeping: Most peacekeeping expenditures are excluded in line with the exclusion of military costs.  However, some closely-defined developmentally relevant activities within peacekeeping operations are included.
  • Nuclear energy: Reportable as ODA, provided it is for civilian purposes.
  • Cultural programmes:  Eligible as ODA if they build the cultural capacities of recipient countries, but one-off tours by donor country artists or sportsmen, and activities to promote the donors’ image, are excluded.