The Future and Reform of ODA: Lessons from an Expert Working Group (CGD)

Development finance has grown in volume and complexity, but official development assistance (ODA)—defined by the OECD’s development assistance committee (DAC)—remains at its core in both a substantive and political way. Although it makes up a shrinking share of total financing for development, ODA is the number most closely monitored in DAC donor countries as a de facto measure of North-South budgetary solidarity, and its effectiveness is regularly scrutinized. Yet there are many questions about the credibility, relevance and need for ODA. Among them:

• There are growing pressures for ODA to be used to meet a broadening array of financing demands—including to respond to global challenges—without commensurate increases in volume.
• The scope of ODA is the object of continued rounds of renegotiating what “counts.”
• The geography of aid providers as well as the landscape of ODA beneficiaries has undergone dramatic changes over recent decades; development assistance can no longer be categorized solely as a North-South feature.
• New forms of aid have become significant.
• Finally, peace and security have become crucial issues, deeply linked to development, which cannot be ignored or side-stepped when reflecting on the role of development assistance.

To address these issues, the Center for Global Development and Agence Française du Développement hosted a private two-day workshop which brought together senior officials and experts for a frank discussion of the policy space for ODA reform, and the practical proposals that could gain traction ahead of next year’s Financing for Development Forum. Our conversation revealed some points of consensus around the type of proposal preferred by participants, yet questions remain about how to build momentum and political buy-in to support reform. This blog summarizes the main takeaways from that rich conversation.

Is ODA still relevant?

Despite proclamations of ODA’s irrelevance given increasingly “global” development challenges, a diversifying array of cooperation providers, and new financing sources and instruments, our conversations revealed some consensus around ODA’s continued importance as a source of development finance and especially poverty reduction. While many argued that the concept had been diluted through continued reforms and growing spending on activities in-donor countries, they agreed that ODA continues to play an important role as a reliable source of finance for low-income and fragile states.

The challenge, however, is that the ODA budget has often been used as the budget of choice to respond to various other motivations for international spending, regardless of whether such uses support development effectiveness. Our discussion emphasized that any conversation or proposal for a reformed version of ODA needed to be clearer about the funding architecture for international needs and the precise role that ODA should play within such architecture to make the most effective use of limited resources. The group agreed that making progress on ODA reform meant breaking from historical path dependence and would require—as a starting place—greater conceptual clarity on ODA’s purposes and comparative advantage, as well as broad agreement on how to serve the wide array of funding needs related to Global Public Goods (GPG).

What should the future of ODA look like?

Broadly, there tend to be three main types of proposals for ODA reform that could serve as a replacement for the current ODA system.

1. New “beyond ODA” concept: Develop a new concept that captures the full range of global funding needs, including development finance, and all available resources, including and beyond ODA.
2. Two-tier approach which separates ODA from GPG spending: Adopt a tiered approach where a re-focused version of ODA—which is used strictly to support activities in poor and fragile states—exists alongside a separate funding metric or target for broader investments in global public goods.
3. Universal global commitment: Propose that all countries, regardless of income level, contribute finance according to ability (e.g. Global Public Investment) for global needs, which have been agreed through the Sustainable Development Goals (SDGs).

Of these proposals, workshop participants generally agreed that a two-tiered approach could provide a viable way forward, with some consensus forming around the need to re-invigorate ODA by “ringfencing” scarce resources to support poverty reduction and economic development in the poorest countries, including support for climate adaptation. Doing so would aim to reverse the dilution of the ODA concept and ensure that concessional finance flows to the places where it can be most effective. However, there was less consensus around the second measure, with little clarity on both the sources of finance and the range of GPGs that should be counted under any “beyond ODA” measure of investment in the global commons. Most participants, however, noted that more public money would be needed to serve both ODA and other global needs.

Other key considerations for ODA reform

The specific proposal for reforming the ODA metric is only part of the issue, with other considerations—including how reformed ODA could be governed, and the option of creating a new financing target—remaining key questions related to the practicalities of any reform option.

On governance, our conversation revealed that the continued relevance of the ODA metric was undermined by its exclusive governance model. Many questioned the credibility of the DAC-led model of ODA decision-making, which necessarily prioritizes the interests of historical providers without seeking input on proposed changes from partner countries or more recent aid providers. Indeed, the general sentiment was that any future vision for reformed ODA must be more inclusive, yet questions remain about which international body might be best positioned to take forward a more inclusive ODA governance structure, with the OECD, UN, and G20 all raised as potential options.

Strikingly, there was some consensus amongst participants regarding the value of financial targets for setting ambition and providing a clear goal. However, several stressed the challenges related to financial targets, noting both the incentive to reduce quality to achieve financial quantity driven goals, as well as the political costs of failing to meet spending targets, not the least of which is the potential to further dilute international trust. More broadly, questions about what any target should cover, and who should contribute to meeting a new target, remain unanswered.

Lastly, there was some debate about whether and what role Total Official Support for Sustainable Development (TOSSD) could play, in world of ring-fenced and more effective ODA, as a contributing metric to cover all the ODA and “beyond ODA” motivations to transfer money internationally. Some argued that TOSSD could become a global metric for sustainable development spending—especially under its new governance arrangement outside of the OECD—and highlighted the inclusivity of the measure, particularly given beneficiary countries’ ability to verify TOSSD reporting. Yet others raised questions about the global interest in TOSSD and highlighted methodological concerns.

The road ahead: how to move the agenda forward towards the 2025 Financing for Development Forum?

In view of the forthcoming international development finance events (the Finance in Common Summit in October, the follow-up to the new global financing pact and the UN Financing for Sustainable Development Conference in Madrid at the end of June)the next twelve months provide a unique opportunity to rethink and reform the current configuration of ODA and the metrics or targets that will govern sustainable development finance for the remaining years of the 2030 Agenda and beyond. At this point, it is clear that reform is needed not only to bring clarity to the role of different sources of finance in tacking today’s complex development challenges, but to rebuild public and international trust in ODA and to ensure that the next phase of development finance is both inclusive and focused on enhancing the effectiveness of the resources available.

While the specific path forward remains unclear, participants stressed the need to harness the upcoming opportunities and political moments to bring about meaningful change and recreate a system that is fit for meeting the challenges ahead.

To advance such reform, they recommended that this workshop be followed-up by a sustained process to help shape the international agenda and to strengthen support for international funding within countries along the ODA/beyond ODA set of motivations. Debate at the highest levels is needed—both nationally and internationally—to develop a shared vision of a cooperative and effective post-ODA world.