Financing for sustainable development

Index of financing for sustainable development terms

 

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Agriculture

 The OECD DAC collects development finance flows at activity level based on a standard methodology and agreed definitions. Aid to agriculture includes: agriculture, forestry, fishing and rural development

 

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Aid orphans

The phenomenon of aid orphans is related to the issue of fragmentation. When too many donors give too little aid to too many countries, these resources are splintered resulting in some countries and sectors being given too many resources that their systems are unable to manage, and others are given too few resources. The areas where aid overlaps are commonly referred to as "aid darlings", while those where it is missing as "aid orphans".

 

Aid for trade

Trade can promote economic growth and development. When developing countries are able to take full advantage of multilateral trade liberalisation, preferential market access arrangement, regional free trade agreements, and expanding South-South trade their economies grow, poverty is reduced and reliance on aid flows weakens.

The Aid-for-Trade Initiative was launched at the 2005 Hong Kong WTO Ministerial Conference, it aims to support developing countries’ - in particular least-developed countries' - access to markets by helping countries to articulate, communicate and mainstream their trade-related objectives and for donors to align with these. The OECD and WTO have established an aid-for-trade monitoring framework to track progress in implementing the Aid-for-Trade Initiative and enhance its credibility. The monitoring and evaluation exercise surveys how trade costs affect developing countries' competitiveness and ability to connect to regional and global value chains, what is being done to address this issue, and how aid for trade can help reduce trade costs and the associated impacts to deliver inclusive, sustainable growth.

 

Blended finance

Blended finance is the strategic use of development finance for the mobilisation of additional commercial finance towards the Sustainable Development Goals (SDGs) in developing countries.

 

 

 

 

 

Climate-related development finance

Climate change effects - such as drought, severe weather and sea-level rise - are having a disproportionate impact on developing countries. For this reason, climate change adaptation and mitigation need to be integrated at all levels of development decision making and adequate resources need to be chanelled towards mitigating these impacts whilst supporting development activities.

Finance that targets climate change adaptation or mitigation has substantially increased over recent years. OECD-DAC statistics capture an integrated picture of both bilateral and multilateral climate-related external development finance flows.

 

Country programmable aid

In order to manage and make the right decisions on allocating resources, recipients and donors need a clear picture on what resources are available in a particular country.

Country programmable aid (CPA) is the portion of aid that donors programme for individual countries, and over which the recipient country has a significant say. Developed in 2007, CPA is much closer to capturing the flows of aid that go to the partner countries than official development assistance (ODA). CPA provides a good approximation of the overall flows expected to appear in countries' aid management systems. CPA helps aid transparency and predictability as it is a consistent measure of past and future aid flows.

 

Creditor Reporting System

The Creditor Reporting System is a database of individual bilateral aid activities that provides easy access to basic data sets on where aid goes, what purposes it serves and what policies it implements.

This information is collected for all DAC members and enables comparison across members.

 

 

Development finance statistics 

Data and statistics on aid flows helps to produce a detailed picture of the development landscape which can help both donors and recipients to understand, allocate and manage resources for development to ensure that these have the maximum impact and results.

The OECD DAC collects data on official development assistance (ODA) and other resource flows to developing countries. It collects comprehensive data on the volume, origin and types of aid and other resource flows, as well as detailed information on individual aid activities (such as sectors, countries, project descriptions, tying status, etc.).

 

 

 

Education

The OECD DAC collects development finance flows at activity level based on a standard methodology and agreed definitions.  Development finance to education is broken down into sub-sectors by level.

 


Energy

The OECD DAC collects development finance flow data at activity level based on a standard methodology and agreed definitions. The development finance to energy generation and supply sector is broken down into 17 sub-sectors covering policy, research, training, distribution as well as generation by type.


 

(Official) Export credits

Officially supported export credits come in the form of government-backed loans, guarantees and insurance to corporations working internationally. Export credits can mitigate risks for investors and enable large infrastructure or energy projects. These flows play an important role in accessing capital in developing countries.

In recognition of the important role these sources of external financing play. The DAC Working Party of Development Finance Statistics has been looking at streamlining OECD databases on export credits in order to report on export credits in greater detail. 

Extending agencies

An extending agency is a government entity that finances activities from its own budget and at its own risk and responsibility. Extending agencies are the budget holders, controlling the activity on its own account. Development finance official extending agencies include government institutions (central, state or local government agencies or departments), official aid agencies, bilateral development banks and development finance institutions (DFIs), international financial institutions (IFIs), and other multilateral agencies.

 

Financing for Development: International conferences

A series of United Nations conferences which began in Monterrey in 2002, followed by Doha in 2008 and Addis Ababa in 2015. High-level participants come together to agree on a framework to support the financial needs of developing countries to support progress towards sustainable development.

Given its knowledge and evidence base centred around tax, investment and international public finance, the OECD played a key role in negotiations at these three conferences.

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Financing for sustainable development

The post-2015 sustainable development agenda will require the mobilisation of a wide array of domestic and international resources from both public and private actors. While official development assistance (ODA) will remain a crucial part of international development co-operation, particularly for countries most in need, a much stronger role for finance beyond ODA, including private capital, is also needed.

The OECD DAC is modernising its statistical measurement framework to promote incentives for mobilising and catalysing development finance and to reflect the broader range of funding options now available to developing countries. Most importantly, a modernised system will also facilitate greater transparency and accountability.

 

Foreign direct investment

Private international investment can play a positive role in supporting long-term sustainable development: it can create jobs, develop technology and new productive capacity and help local firms access new international markets. Foreign direct investment (FDI) now represents one of the biggest sources of developing countries' external financing. It is frequently a stable source of investment which builds long-term relationships and has a positive impact on sustainable development.

Given the important role of FDI in supporting sustainable development, the OECD DAC has been working to recognise the contribution of FDI by developing a broader statistical framework (TOSSD) which recognises private finance flows that target development objectives.

 

Forward spending survey

Understanding donors' future spending plans is essential to the effectiveness of aid. For recipients, forward spending information allows better programming and allocatation of resources and helps to ensure the sustainability of development efforts. Between donors, this information supports better co-ordination and collaboration.

The forward spending survey gathers data on bilateral and multilateral donors' spending plans on an annual basis.

 

Fragmentation

Fragmentation can occur when too many donors give too little aid to too many countries, or when there are too many or too few donors present in a country or a sector. This has a serious impact on the effectiveness of aid by increasing transaction costs and administrative burdens for recipient countries.

OECD data analysis on aid fragmentation looks to identify overlaps and gaps as a result of aid fragmentation. These studies underpin guidelines on division of labour as well as work to identify under-aided countries or "aid orphans".

 

 

Gender equality and women’s empowerment

Ensuring gender equality and women's empowerment is a core component of sustainable development. Aid that specifically targets these objectives is essential.

The OECD DAC compiles data on its members’ activities targeting gender equality and women’s empowerment, this data is compiled with the help of the gender equality marker in the Creditor Reporting System (CRS). Every aid activity reported to the CRS should be screened and marked as either (i) targeting gender equality as a “principal objective” or a “significant objective”, or (ii) not targeting the objective.

 

Global Outlook on Financing for Development

The OECD will launch a new Global Outlook on Financing for Development in September 2018 to strengthen OECD coherence and effectiveness across Addis Ababa action areas (e.g. Investment, Taxation, Trade, Environment, Science, Technology and Innovation, and others).

 

 

Health

The OECD DAC collects development finance flows at activity level based on a standard methodology and agreed definitions. Development finance to health is covered by two main sectors: i) Development finance to health  - general and basic health and ii) Population policies/programmes and reproductive health - including HIV/AIDS

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Humanitarian assistance

Humanitarian action – saving lives, alleviating suffering and maintaining human dignity during and in the aftermath of crises – is a clear priority for DAC donors. Over USD 12.6 billion of public funds were disbursed as humanitarian aid in 2013 by the 29 members of the OECD DAC, representing 9% of the total allocation for official development assistance.

 

Infrastructure

Infrastructure—such as water and sanitation, transport, energy and communications—is fundamental for economic growth, poverty reduction and human development. This is all the more relevant as production systems are increasing across continents, which requires scaling up infrastructure to connect developing countries with global value chains that could spur their economic growth. However, with developing country populations expected to keep growing in the decades ahead — and with high rates of urbanisation — there is wide recognition that current resources are insufficient to fill the infrastructure investment gaps of these countries. 

Development partners are mobilising private finance for infrastructure in three ways. First, they help host governments improve the enabling environment, both for the general investment climate and in the specific infrastructure sectors. Second, development finance institutions provide equity, loans, guarantees and technical assistance to the private sector to invest in infrastructure. Third, development partners support various initiatives such as Project Preparation Facilities, Project Facilitation Platforms and Blended Finance mechanisms. 

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Innovative financing

Innovative financing refers to initiatives that aim to raise new funds for development, or optimise the use of traditional funding sources. Over recent years development actors have been looking at new ways to scale up aid flows in order to meet their development targets. This has led to the emergence of new actors and sources of funds for development. The first innovative financing mechanisms were created to combine public and private contributions to meet major health challenges for example the GAVI Alliance and the Global Fund which take advantage of the upsurge in private philanthropy for development to create public-private partnerships.  Other mechanisms exist such as guarantees, blended financing and mechanisms such as air travel levies or taxing financial transactions. 

 

 

Investment

Private sector investment for development boosts economic growth and contributes to human development. It has gained prominence in recent development discussions, including at the Financing for Development conference in Addis Ababa in 2015 and the UN Summit on the Sustainable Development Goals.  In order to attract the private sector, however, a good investment climate is necessary. In this context, the OECD has developed a Policy Framework for Investment (PFI), a checklist that informs investment climate reforms in developing countries. At the OECD Ministerial Council Meeting of June 2015, a Recommendation was adopted to encourage the use of the PFI as a reference for donors to use in helping developing countries.

Currently, a methodology  is being developed to measure donor efforts to help developing countries use the PFI, as well as exploring specific themes such as activities to foster small medium sized enterprises or responsible business conduct.  A joint Investment Policy Review with the Investment Committee Secretariat to examine a country case study, such as Cambodia, is also being planned.  

 

 

 

 

Multilateral development finance

Funds given from bilateral donors to multilateral agencies such as the United Nations, the European Union, and the World Bank and around 200 other organisations account for over one third of total ODA. Multilateral organisations are politically neutral conveners of global partnerships, vehicles for upstream pooling of resources, facilitators for multistakeholder cross-border operations and setters of global standards and norms. Multilateral organisations therefore play a key role in ensuring that development resources bring about the intended results.

The OECD collects and analyses the largest available source of data on multilateral organisations to develop recommendations designed to guide both multilateral and bilateral donors optimise their relationship and ways of working.

 

 

Philanthropy

Philanthropic foundations are increasingly important development actors in today's development finance landscape. They work on a great variety of projects and activities investing in social progress abroad - particularly in developing countries.

The OECD DAC Working Party on Development Finance Statistics works to increase the coverage of philanthropic organisations' operations in developing countries.

 

 

Non-ODA Flows

With the changing development landscape over recent years, the question of how to generate enough financing to ensure that development targets are met has been high on the agenda. Sources of finance for development - beyond ODA - have become increasingly important and mobilising and managing these will be critical to ensure the success of the Sustainable Development Goals.

The OECD DAC is working to improve the quality and policy-relevance of its statistics on resource flows to developing countries beyond ODA.

 

 

 

Official development assistance (ODA)

The term “aid” usually refers to official development assistance (ODA).

ODA is defined as flows to countries and territories on the DAC List of ODA Recipients and to multilateral institutions which are provided by official agencies, including state and local governments, or by their executive agencies. In addition, each transaction must be administered with the promotion of the economic development and welfare of developing countries as its main objective; and be concessional in character and conveys a grant element of at least 25% (calculated at a rate of discount of 10%).

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Official development finance (ODF)

Official development finance is measured in relation to the receipts of developing countries. It is a broad measure of developing countries’ official receipts for developmental purposes, and is defined as the sum of bilateral ODA and bilateral other official flows (e.g. non-concessional developmental loans) except grants and loans for commercial purposes, and all grants and loans by multilateral development institutions.

 

Predictability

To help efforts toward greater predictability and better assess the prospects in aid delivery ahead of time, the OECD conducts the Survey on Donors’ Forward Spending Plans, a unique instrument that brings together most bilateral and multilateral aid spending plans – and the only regular, global process of its kind.

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Private sector

The private sector is becoming an increasingly important development actor. Private resources such as foreign direct investment, venture capital and securities have increased over recent years. This has created new opportunities to leverage the enormous sums that are needed to finance the post-2015 development agenda.

The OECD DAC supports work  to establish an international standard for measuring the volume of private investment mobilised by official interventions. Notably, it carries out two surveys on guarantees and leveraging instruments to estimate the volume of private flows that are mobilised by guarantees, syndicated loans and collective investment vehicles.

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(Provider countries) beyond the DAC

Emerging providers of development finance and other countries that are not members of the Development Assistance Committee (DAC) have an important role in financing development co-operation.

The OECD DAC collects and publishes statistics on those countries and makes estimates on the development co-operation programmes of several countries beyond the DAC that are not reporting: Brazil, Chile, China, Colombia, India, Indonesia, Mexico, Qatar and South Africa.

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Provider perspective

The “provider perspective” presents resource flows emanating from provider countries. DAC statistics track resources extended by provider countries to developing countries and multilateral development institutions, which are categorised as bilateral and multilateral contributions respectively.

 

 

Recipient perspective

The “recipient perspective” presents developing countries’ resource inflows (also referred to as developing countries’ resource receipts). These consist of bilateral flows from provider countries and outflows from multilateral development organisations. Data on the latter is collected directly from the multilateral organisations, with details on the recipients (country or region), purpose and the financial instruments used (concessional and non-concessional). The data collection is limited to core (unearmarked) resources to avoid double counting.
 

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Remittances

Funds sent by people living and working abroad to their home countries have increased rapidly over recent years, and today represent the largest source of external finance for many developing countries. In some countries, remittances can account for up to half of GDP.

The OECD analyses data on remittances.

Rio markers

Tracking finance flows towards environmental objectives is key to holding countries to account on their commitments to mbilise 100bn USD per year by 2020 to support climate change mitigation and adaptation in developing countries.

External development finance targeting environmental objectives is monitored through the DAC’s creditor reporting system (CRS) using “policy markers”.  Donors are requested to indicate if each development co-operation activity they report to the OECD targets environmental objectives. Five statistical policy markers exist to monitor external development finance for environmental purposes within the OECD DAC, these are: “environment” (1992); “Biodiversity” (1998); climate change adaptation (2010); climate change mitigation (1998); and desertification (1998). The Rio markers are applicable to official development assistance (ODA) and recently also to other official flows (OOF) (non-concessional developmental flows, excluding export credits) starting from 2010.

 

 Social Impact Investment

Social impact investment is an innovative approach to further drive economic development and achieving social outcomes. Social impact investing provides finance to organizations addressing social and/or environmental needs with the explicit expectation of a measurable social, as well as financial, return.

 

 

Total official support for sustainable development (TOSSD)

Since the Monterrey Consensus in 2002, the political debate on the mobilisation of private resources for developmental purposes has been at the heart of development finance agenda. The recent Addis Ababa Action Agenda clearly affirmed the need to mobilise all available funding – public and private – to achieve the ambitious post-2015 development agenda and to support global efforts underway to address climate change.  Given the unprecedented scale of finance required, exploring ways to creatively leverage resources will be crucial to the success of these major international endeavours. To better understand the diverse, extensive and complex international financial architecture, statistical frameworks also needs to be brought up-to-date with measures that can capture these financing trends, facilitate their analysis and provide greater transparency of finance available to developing countries.

Over the last two years, the OECD DAC has carried out careful examination of the international statistical system to understand how it could better accommodate the post-2015 development agenda. Monitoring and mobilising the broad range of instruments and complex financing packages that will support it are essential to this end. These financial resources include: ODA, other official flows, private resources and instruments, such as guarantees.

A new measure has been proposed and is provisionally entitled: total official support for sustainable development (TOSSD). Going forward, the OECD will do its part to support international collaboration to shape and operationalise the TOSSD measurement framework.

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Transparency

Transparency has been pushed to the top of the global agenda. The DAC's mandate to further the understanding of development finance, strengthen aid delivery, improve development policy and build partnerships for development is both complimentary to - and a crucial part of - the success of the global transparency agenda. As part of the OECD, the DAC is working towards making this "transparency transformation" a success by:

•    developing a range of instruments to help governments ensure that openness translates into concrete improvements;
•    supporting e-government and internet-based technologies and applications;
•    providing regular reviews of development partner (donor) countries; and
•    promoting greater transparency as a means to fight corruption.

Transparency is one of the four pillars of the Busan Partnership agreement. In order to improve accountability between development partners and to the intended beneficiaries of development, the Busan Partnership agreement emphasises the need for transparent practices as the basis for better accountability.

A common, open standard was endorsed in June 2012. It builds on two existing standards – the DAC Creditor Reporting System and Forward Spending Survey and IATI – through consultations led by representatives of major stakeholder groups.

 

 

Untied aid

"Tying” aid means that ODA is offered on the condition that it be used to procure goods or services from a specific country or region. Tying aid can increase the costs of a development project by as much as 15-30%. In addition, the administration of tied aid requires larger bureaucracies in both the donor and recipient countries. Untied aid avoids these unnecessary costs by giving recipient countries the freedom to use their aid to procure goods and services from virtually any country. The OECD DAC reviews annually its members' performance in implementing the 2001 DAC Recommendation on Untying Aid.

 

 

 

Water supply and sanitation

The OECD DAC collects development finance flows at activity level based on a standard methodology and agreed definitions. The development finance to water supply and sanitation sector is broken down into eleven sub-sectors including policy, sanitation, supply, rivers and waste.

 

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