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Projected slowdown in aid flows underscores need for enhanced effectiveness

Annette De Kleine Feige's picture

The Global Monitoring Report 2012 reports on the remarkable growth in Official Development Assistance (ODA) over the decade through 2010, despite the global financial crisis centered in high-income donor countries. Net ODA reported to the Development Assistance Committee  (DAC) of the Organization for Economic Co-operation and Development (OECD) rose from 0.22 percent as a weighted average of donors’ gross national incomes (GNI) in 2000 to 0.32 percent in 2010 and reached a record high of $127.3 billion in 2010 (at 2009 prices)—very close to the target of $130 billion set at the G-8 Gleneagles Summit in 2005. There is some evidence that international coordination, notably the commitments made at Gleneagles, contributed to the rise in aid disbursements. 

Nevertheless, aid remains well short of the goal of 0.7 percent of GNI set by the United Nations some 40 years ago and substantially below various estimates (Atisophon and others 2011) of annual disbursements required to meet the Millennium Development Goals (MDGs). Further, a key concern is that it may take several years before the full impact of the global financial crisis on aid flows becomes apparent. This concern is underscored by the just released (April 2012) preliminary OECD data indicating that ODA disbursements declined by 2.7 percent in 2011 (at 2010 prices) and fell to represent 0.31 percent of GNI from 0.32 percent in 2010—as fiscal consolidation in several DAC countries has cut into their aid budgets. Additionally, while aid flows showed strong gains through 2010, progress in improving aid effectiveness has fallen short. Only 1 of the13 global targets set out in the Paris Declaration on Aid Effectiveness (2005) to be achieved by 2010 has been met, and only limited progress has been made on the other 12.

A possible slowdown in ODA flows highlights the need for improving aid effectiveness to meet the MDGs by their 2015 deadline. If realized, a decline in disbursements could have significantly negative fiscal implications for countries affected—and potentially on the achievement of the MDGs. This underscores calls at the Fourth High Level Forum on Aid Effectiveness in Busan (2011) to focus on results and improve aid coordination, as well as to scale up aid for fragile states and under-aided countries. Additionally, directing a larger share of disbursements to country programmable aid (CPA)—a core subset of ODA that accounts for about 60 percent of total DAC gross bilateral ODA and excludes unpredictable components such as emergency food aid and aid flows that do not have direct development impacts, such as donor administrative costs—would help to mitigate the impact of weakened ODA.