Negotiating the Blurred Lines Between Official Development Assistance and Other Official Flows
Over the last year, AidData has been working to shed light on new and historical sources of foreign development data. In the final post of a 7-part series, we examine Other Official Flows.
The OECD-DAC originally created definitions of official development assistance (ODA) and other official flows (OOF) to serve as standard measures of capital flows abroad. However, because Non-DAC providers of development finance do not adhere to OECD-DAC aid practices, their development financing can blur the lines between ODA and OOF. This makes it extremely difficult to compare aid from DAC and non-DAC donors. Non-DAC providers of development finance, especially South-South Cooperation providers (which embrace mutually beneficial economic cooperation), are particularly likely to integrate flows that fit the criteria for OOF into their development cooperation portfolios.
Since 2000, emerging economies have contributed an increasing amount of development finance capital - in the form of OOF - competing with the traditional dominance of the advanced economies in this area. Without better and disaggregated data on OOF transfers by source country, it is difficult to accurately assess OOFs from DAC and Non-DAC providers, as well as the amount of debt accumulated by recipient countries. Unfortunately, most of this data is locked behind the walls of just a few key institutions performing an oversight function for debt sustainability.
What’s included in other official flows?
The composition of other official flows includes both outflows from, and inflows to, donors. Outflows incorporate grants, official export credits and other long-term finance, while, inflows may comprise capital repayment on other long-term finances, official export credits received and the interest repayments.
While the OECD DAC’s Creditor Reporting System captures OOFs from DAC (and a few Non-DAC) donors, they have not applied the same transparency standards for other official flows as they have for ODA, especially for official export credits. The current DAC arrangement on export credits promotes transparency between participating DAC member states but remains relatively non-transparent to external actors. Irrespective whether the export credit flows are originating from DAC or Non-DAC providers, the role of transparency should go beyond bringing level playing field and check unfair trade practices in the export credit sector. Essentially, recipients must be empowered to hold both DAC and Non-DAC actors equally accountable.
The competition to provide other official finance
Other official flows are intrinsically competitive, as they are designed to promote the provider’s own economic agenda.
Angola is a case in point - the country has seen its available credit expand as a result of competition among export credit agencies for access to markets and resources. Since 2000, Angola has received at least $10.5 billion in resource-backed lines for credit (i.e.,debt accumulated) from the China Exim Bank and $8 billion in credits from Brazil’s Development Bank (BNDES). DAC donors like the United States have also expanded export financing to Angola, finalizing a $1 billion agreement in June 2014 to fund a deal with GE under the new “Power Africa” initiative.
Where do we go from here?
Before integrating OOF into a broader definition of development cooperation, it is important to understand the economic impact of these flows on recipient economies. Because bilateral OOFs are typically offered at rates that are more commercial than concessional, repayments on these flows can quickly become onerous for the recipient. Often OOFs can result in a net outflow of capital from developing to advanced economies.
Busan and Mexico High Level Forums marked the transition from ODA to development cooperation. However, neither forum resulted in a comprehensive definition of development cooperation. Without such a definition, there was a missed opportunity for the International Aid Transparency Initiative to create momentum for OOF transparency. As a result, these forums ended up creating only a fuzzy transparency mandate for effective development cooperation.
The movement to redefine development cooperation integrating the DAC’s donors ODA and south-south cooperation providers’ development finance is an important step toward accurately capturing resource transfers. A consensus on defining OOFs and its reporting standards is a prerequisite for accurately capturing these resource transfers. Once there is an agreement on a more comprehensive definition of development cooperation, the current OOFs should be subjected to the same standard of transparency for both DAC and Non-DAC actors. Transparency of OOFs is non-negotiable for both DAC and Non-DAC actors - without it we are limited to asymmetrical comparisons that obscure the real contributions of DAC and non-DAC actors to development cooperation.
Pranay Sinha is AidData’s Non-DAC Manager. Charles Perla is a Junior Program Manager with AidData focusing on Chinese development finance