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AidWatch 2014: Europe’s Role in financing and implementing sustainable development goals post 2015

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Next year, the EU will have an opportunity to shape the future development and financing frameworks and ensure that they make a strong contribution to ending poverty and inequality.
The ninth CONCORD AidWatch report argues that aid will remain a crucial source of finance for development, and it shows the path the EU needs to follow to make aid an even more powerful instrument in meeting internationally agreed goals for sustainable development. To achieve this, the EU will have to overcome three main challenges:

First, not everything that is reported as aid translates into development results. In order to maintain the current and future contributions needed for achieving international development goals, it is important to ensure that aid remains focused on eradicating poverty and achieving positive development outcomes. The OECD DAC review of the current definition of ODA could help to ensure that aid remains an effective tool for fighting poverty and inequality, but it also poses certain risks, potentially allowing donors to inflate their aid figures artificially through new measures which are focused more on their own efforts than on what benefits developing countries. To unleash the true potential of aid, EU donors should:

• Ensure that the review of the ODA definition is underpinned by these two essential principles: – focus on sustainable development that puts people first. This aspect should be based on existing development effectiveness principles, so that only flows that comply with these principles are reported as aid; – ensure that only genuine aid to developing countries is counted as ODA, and insist on evidence to support the development additionality of any permitted in donor costs.

• At the very least, the future definition should exclude the expenses identified in the AidWatch methodology as inflated aid: student costs, refugee costs, debt relief, interest on loans and tied aid.

• Only the net grant equivalent of concessional loans measured in relation to the borrowing costs of donors should be reported as ODA.

• Avoid broadening the ODA definition by including additional expenses that do not follow the basic principles stated above. In particular: avoid the securitisation of aid, certain forms of support to the private sector which do not promote development, climate finance and tax rebates.

Secondly, the EU needs to demonstrate its commitment and credibility by delivering on and recommitting to existing aid quantity targets. Only four EU member states have met the 0.7% of GNI for ODA target, and in 2013 total EU aid, including aid from EU institutions, stood at €56.5 billion, or 0.43% of gross national income. Official forecasts predict that in 2015 the governments of most EU member states will fail to meet even the intermediary target of 0.56% ODA/GNI, which was set for 2010. Aid targets are crucial in the context of global development efforts. By promoting healthy competition and preventing a race to the bottom, collective targets create a positive incentive for countries to increase aid. They also allow stakeholders – including other countries, NGOs and citizens – to track performance and hold donors to account. Aid targets also enable developing countries to make longer-term plans, and they encourage them to invest in ambitious and necessary reforms – as opposed to using ODA for quick wins which result in volatile and unpredictable aid. As the world progresses towards agreeing a new and hopefully ambitious development framework and post-2015 goals, the donor community has a particular responsibility to live up to its commitments on ODA.

This means not just delivering a credible recommitment to and action on globally agreed aid targets, but also living up to the spirit of that commitment. EU donors should remain committed to increasing the amount of aid they deliver. They should:

• Set themselves ambitious aid targets, at least at the level of the current ones, to allocate 0.7% of GNI to ODA and 0.15-0.20% ODA/GNI to least developed countries (LDCs).

• For those countries that have not yet reached their aid targets: by December 2015, adopt binding roadmaps and concrete timetables for doing so.

• Agree on a joint EU definition of “new and additional climate finance” so that aid and climate commitments can be measured accurately and independently.

• Stop inflating aid, and exclude inflated aid items from ODA reporting: refugee costs, imputed student costs, tied aid, interest on loans and debt relief.

• Ensure donor support to the private sector complies with development effectiveness principles and international standards, including by performing the necessary due diligence, so that its impact on development is positive and sustainable.

Thirdly, development effectiveness principles can and should apply to the new development and finance frameworks, for all forms of financing for development, both public and private.

The development effectiveness agenda contains extremely valuable lessons for the future development agenda, and provides a framework for assessing future development efforts and finance flows and ensuring that they have a positive, sustainable impact on the lives of poor people across the world. The EU can help put development effectiveness principles at the core of the future development framework, but if it is to be a credible champion in this area it first needs to get back on track.

• The EU and its member states should fully implement and deliver on their aid effectiveness commitments. In particular, they should: – Start publishing aid information to the International Aid and Transparency Initiative (IATI) by the end of 2014.

Those countries which are already reporting in accordance with the IATI standard should continue improving the quality of the information they make available. – Continue making progress on joint programming: there are adequate evaluation and feedback mechanisms to ensure that its implementation results in more effective aid by increasing both the democratic ownership of development policies and donors´ alignment with them. – Meet existing targets for the use of country systems, and continue making progress over time. Greater emphasis should also be placed on budget support, especially in view of recent evidence of its positive impact. – Fully untie all aid, as agreed internationally, so as to increase aid effectiveness, and take steps to measure and decrease the amount of informally tied aid in the future.

• The EU and its member states should put development effectiveness principles at the core of the post-2015 development and financing framework by: – Making development effectiveness a European priority in international debates about future sustainable development goals and in the preparations for the international conference on financing for development to be held in Addis Ababa in July 2015. – Showing the way by improving the monitoring of development effectiveness commitments in order to increase accountability and speed up progress towards existing targets. Member states should build on the precedent set by the EU Accountability Report.