The Evolution of the ODA Accounting Rules

The 2000s similarly saw only minor adjustments to the ODA rules – namely related to peacekeeping – at a time when the focus was primarily on increasing the quantity and quality of ODA to meet the new Millennium Development Goals. Specifically, reforms to ODA accounting included small changes to reporting directives for “technical cooperation and civilian support to security systems reform” in the aftermath of 9/11,[i] and a 2006 agreement to count 6% of multilateral contributions to UN peacekeeping as ODA, building on reforms made in the prior decade.[ii] Perhaps more notably, the 2000s saw clear advances towards better defining ODA effectiveness with the 2001 adoption of the Recommendation on Untying ODA to the Least Developed Countries[iii] and the 2005 Paris Declaration on Aid Effectiveness. Despite few changes to the ODA definition throughout the decade, concerns over prior reforms to ODA accounting had prompted long running efforts – beginning in 1996 – to develop a new measure of the subset of ODA over which recipients have significant control.[iv] This measure, called “country programmable aid” (CPA), was finalized in 2007. Indeed, in light of commitments to expand the quantity of ODA – including at key moments such as the first Financing for Development Summit and the G8 in Gleneagles – CPA was finalized at a time when DAC members faced growing incentives to broaden ODA accounting to meet new quantity targets. 

During the 2010s, the ODA accounting rules underwent substantial reform as part of the DAC’s efforts to “modernise” ODA alongside major changes in the development landscape. First, responding in part to new financial realities – namely, that low interest rates in the wake of the financial crisis meant that even non-concessional loans met the ODA tests (i.e. 25% grant element and 10% discount rate) – and donor incentives to “count” loans made at market rates as ODA to meet volume commitments made in the prior decade, a key aim of the modernisation agenda was to correct for the overcounting of ODA-eligible loans.^[v] To do so, the DAC agreed to “overhaul” the ODA concept during its 2014 High-Level Meeting, deciding that from 2019 onwards, headline ODA figures would be measured as “grant equivalents” rather than “net flows”.^[vi] Given that the grant equivalent system would also have implications for how providers reported debt relief of ODA loans, in 2020, the DAC agreed to similarly report debt relief on a grant equivalent basis.[vii] While the adoption of the grant equivalent approach aimed to correct for overcounting, the approach has been widely criticised for overestimating the “true value” of ODA loans,[viii] and the potential to double-count “risk” in the application to debt relief.[ix] Second, the combination of tightening public budgets in the aftermath of the financial crisis, and pressures to use ODA to leverage private finance in efforts to scale-up funding for the Sustainable Development Goals (SDGs) led DAC members to explore methods of including more investments in private sector development as ODA. While negotiations on “private sector instruments” (PSIs) initially stalled, in 2023, the DAC agreed to a method for counting either capital increases to institutions that extend PSI (namely, donor development finance institutions), or individual activities under a range of PSI modalities (i.e. loans, equities, guarantees, mezzanine finance, etc.) as ODA.[x] The PSI rules similarly sparked concern, with some arguing that the new rules could functionally allow donors to “score ODA for their commercially viable investments”.[xi] Alongside these changes to ODA accounting, recognition that ODA measurement captured only part of the development finance story, particularly alongside calls for greater private sector contributions to sustainable development and in light of growing flows from countries beyond the DAC, sparked efforts to create a new statistical measure – called Total Official Support for Sustainable Development (TOSSD) – to capture a wider array of resources available to promote sustainable development in developing countries.[xii]

While the 2010s also saw minor revisions to eligibility and accounting rules related to peace and security[xiii] and in-donor refugee costs,[xiv] as well as the creation of a new purpose code for migration in the wake of the Syrian civil war and growing refugee flows,[xv] further questions about ODA accounting emerged in the early 2020s with the onset of the COVID-19 pandemic. In response to resources mobilized to counter the impact of COVID-19, DAC members agreed to introduce a new purpose code for tracking COVID-19-related activities in 2020.[xvi] The following year, the DAC issued guidance on how to count COVID-19 vaccines donations as ODA-eligible activities, recommending that members count donated doses using the price of USD 6.72 per dose.[xvii] The decision to count vaccine donations as part of ODA budgets was controversial, with some members arguing that excess vaccine donations should not be considered ODA eligible.[xviii]

Is today’s ODA a credible measure of development effort?

The evolution of the ODA accounting rules highlights a series of sometimes contested decisions that raise questions about ODA’s continued credibility as a measure of solidaristic finance to support the welfare and development of lower-income countries. While the initial conceptualization of ODA stressed “development-orientation” and “concessional” characteristics as defining factors, changes to both the activities that “count” as ODA – such as the inclusion of imputed student costs, in-donor refugee spending, and surplus COVID-19 vaccines – and how ODA is measured – through the introduction of grant equivalents – have raised concerns that both guiding principles have been eroded over time. On “development orientation”, the development value to lower-income countries of finance which remains in donor countries (e.g. in-donor refugee spending, student costs) has been an ongoing source of contention, especially when spikes in in-donor spending – including in the wake of crises in Ukraine and Palestine – displaces other cross-border flows (i.e. when overall ODA budgets remain flat).[xix] Similarly, the recent ODA modernization process raised a series of concerns regarding the concessionality pillar of ODA reporting, with some arguing that the discount rates applied to ODA loans, debt relief, and PSI, “are so high that they almost guarantee that every conceivable loan or guarantee, no matter how profitable, will score positive ODA”.[xx]

Part of the challenge is undoubtedly linked to the DAC-led nature of ODA decision-making, which means that the accounting rules necessarily prioritize the incentives of providers without seeking input from partner countries about whether changes would be considerable acceptable – or beneficial – from their perspective.[xxi] As many have pointed out, the result is a system where DAC member interests dominate ODA rule-making, leading to a majority of changes that expand the activities which can be counted as ODA (see Annex 1), without necessarily growing the finance that delivers value for partner countries. Indeed, the evolution of ODA highlights a persistent trade-off between accounting changes aimed at increasing the quantity of ODA, several of which occur around major volume commitments, and the dilution of ODA's quality – or integrity – in terms of the development value that funding offers to partner countries. Going forward, key questions about the future of ODA will likely need to consider not only technical questions about what should count in the ODA statistic, but also whether ODA governance systems should be reformed to allow for more participatory decision-making that also considers the preferences of recipient countries.

Conclusion

In a shifting development landscape, where donors are asked to respond to complex interrelated crises, often through ODA, DAC members will likely face additional pressures to expand what “counts” under ODA reporting. However, deciding whether and how ODA should reform, will likely depend on first-order questions related to the role that ODA is expected to play alongside other sources of development finance, and whether the current accounting rules leave ODA well positioned to achieve its intended aims. While these questions are still open for debate, they remain critical for informing the future of ODA and the changes necessary to ensure its continued relevance and credibility.