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Monday, 20 January 2014

How loans can be reported as development aid?

European donors have been accused of profiting from their aid budgets, as an increasing amount of their money for the developing countries is being given as loans – which have to be paid back with interest. In a report published last Thursday (16 January), Eurodad informs that loans offered at preferential terms can be reported as official development assistance (ODA), provided they meet certain concessionality conditions. The paper discusses the main developments in this debate over the past ten years and presents recommendations on how to optimise the developmental benefits of this reform.
The issue of concessional loans has attracted much discussion in recent years. The context of tighter budgets in Europe is incentivising governments to find methods to increase ODA levels without budgetary implications. One possible way of doing this is by reporting a larger share of their loans to developing countries as ODA. The discussion is also gaining prominence in relation to several issues on donors’ agendas, including how to leverage development resources by blending public with private funds, and how to capture budget neutral financial instruments and lending to middle-income countries as development finance contributions.
The Organisation for Economic Cooperation and Development (OECD) Development Assistance Committee (DAC) compiles aid statistics that allow comparisons and monitoring of aid volumes provided by bilateral governments and multilateral institutions for the purpose of reducing poverty in developing countries. Lending to sub-Saharan African governments has more than doubled over five years, from $8 billion in 2006 to $20 billion in 2011. Concessional lending to developing countries has followed a similar rising trend. DAC multilateral institutions have disbursed twice as many concessional loans to developing countries in 2011 ($42 billion) than in 1995 ($19 billion). Similarly, concessional loans from DAC bilateral donors have doubled over the past decade, from $8 billion in 2001 to $16 billion in 2011.
‘Concessionality requirements’ are currently being discussed within the DAC, to see whether they are relevant and how they can be improved. While concessionality addresses key issues for the future of aid quantity and quality, the debate has so far been taking place among government officials with no broad involvement of civil society and has been framed in rather technical terms.

Source: Eurodad and EurActiv