Published 21 June 2023 in News
On June 22 and 23, 2023, a Summit for a New Global Financing Pact will be held in Paris, organized by France. Many leaders from States, governments, international organizations, civil society and the private sector will be invited to discuss solutions for financing global development and the climate transition.
In order to decipher the stakes of this Summit, Focus 2030 aims to gather and highlight the point of view of organizations that are expert in their respective fields and is conducting a series of interviews with representatives of governments, international organizations, NGOs, think tanks, and others.
Discover our Special Edition about the Summit for a New Global Financing Pact and all the interviews with experts conducted ahead of the Summit.
Written interview received on June 21, 2023.
Focus 2030: The OECD Development Assistance Committee (DAC) has been one of the main pillars of the global financing architecture for more than 60 years. What do you see its role will be in the new global financing pact that will be discussed in Paris?
Pilar Garrido: Calls for an overhaul of the global financing architecture inherited from Bretton Woods have multiplied recently: that’s why we are all meeting in Paris this week. The DAC is one of the pillars of that architecture, providing official development assistance (ODA) that has been considered as the “gold standard” of foreign aid since 1969. DAC members provide around 80% of the voluntary contributions to the UN development system; 89% of the latest International Development Agency (IDA) replenishment; and more than 60% of the external finance received by low-income countries (LICs). Thus, the DAC’s role and that of ODA remain prominent in the global financing architecture.
While a number of new aid providers have appeared in recent decades, the level of their official assistance is difficult to measure and compare, due to differences in definitions and reporting standards. Nevertheless, like the IMF and World Bank, the DAC needs to evolve to remain fit-for-purpose in the Sustainable Development Goals (SDGs) era. The OECD, which hosts the DAC, and members of the Committee are taking part in the New Global Financing Pact summit to discuss improvements and the way forward. Later in the year, at its High-Level Meeting, the DAC will discuss a new programme of work around a renewed ambition. The Committee intends to actively engage in the forthcoming discussions on the revision of the Addis Ababa Action Agenda.
Focus 2030: Official development assistance (ODA) has reached a record level in 2022. But most of the increase is driven by the emergency response to crises (COVID-19 and Russia’s war of aggression against Ukraine). How to ensure ODA responds to both short and long term development objectives?
Pilar Garrido: ODA levels have indeed reached a record level in 2022, breaking the bar of USD 200 billion. Responses to crises have largely driven this growth: in 2021, COVID-19 related activities represented 12% of ODA, and in 2022, in-donor refugee costs and aid to Ukraine represented 14.4% and 7.9% of ODA respectively. This is a good sign: it means that DAC members are agile and ODA is flexible enough to respond to urgent situations, including by front-loading some already planned disbursements. Beyond disbursements, however, one should look at new commitments to anticipate future trends. Going forward, the challenge will be to lock-in the level of ODA reached and, as crises phase out, reallocate the funds to long-term sustainable development objectives.
The COVID-19 crisis has reaffirmed the need to invest in preparedness to shocks, including health, climate or forced displacement of populations. In other terms, the need to invest in global public goods. The DAC has already started to shift its portfolio: 60% of ODA is now going to producing global public goods or fighting global public bads, up from 37% a decade before. Thus, the DAC seems to manage to combine both short-term and long-term agendas. But it should be clear that ODA cannot do it all, and probably shouldn’t do it all! We are looking forward to having these conversations at the summit: how can ODA be best spent on both crises and longer term development? To answer this question, we must take into account country priorities, their contexts and levels of development, as well as their capacities to mobilise other sources of financing, domestic and foreign, public and private.
Focus 2030: This raises the question of addressing vulnerabilities, in particular climate vulnerability. Do you think the DAC is sufficiently taking into consideration vulnerability in the allocation of ODA?
Pilar Garrido: Vulnerability is at the heart of agenda of financing sustainable development. When Small Island Developing States (SIDS) reignited the debate on vulnerability, with a new focus on exposure to climate shocks, the international community reacted very positively. Then, a number of countries started to point at their own vulnerabilities, and it felt like a Pandora’s box had been opened. The DAC is criticized for using GNI per capita as a criterion for ODA eligibility. While it recognises its imperfections, GNI remains the “least worst” of all available measures, given limited access to data in the poorest countries, and methodological challenges in the compilation of so-called multi-dimensional vulnerability indexes (MVIs). The DAC has adopted a pragmatic approach: recently, it has introduced the possibility of reinstatement on the ODA eligibility list for recent graduates affected by adverse shocks. It also agreed to the possibility of a moratorium on graduation for some countries during the COVID-19 crisis, due to uncertainty on data. Beyond the question of graduation, MVIs could definitely help improve the allocation of ODA. Many DAC members are revisiting their country priorities and engagement strategies.
The Paris Summit echoes the need to address vulnerability in its many dimensions. Many middle income countries are on the brink of debt distress, and development is not a linear process. As our transition finance work shows, moving income categories might be a hurdle in itself, even from low to middle income: many donors disengage and countries face difficulties in managing debt sustainability once they gain access to private capital markets.
There is no one-size-fits-all in development cooperation, and vulnerability should be used as a warning signal that even greater attention required from a country’s partners. Graduations from income categories should be celebrated, not mourned. To get there, the most vulnerable need specific care throughout their development process.