Perspectives on global development

Financing Development: Aid and Beyond (2007)

 

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Financing Development:
Aid and Beyond (2007)

 

 

Aid alone cannot finance development; new actors and fresh sources of finance are essential complements to it. This highly stimulating book takes a deep look at the changes in the "international development finance architecture". It finds that the emergence of a multiplicity of new financing options is good news for developing countries, but that it raises challenges for donor and recipient alike. While policy makers in developing countries need to make the most of new funding opportunities, traditional donors need to reposition themselves in the system.

This volume is the first of an annual series designed to support the OECD Global Forum on Development.


CONTENTS & CHAPTER SUMMARIES


Did you know?

> While official aid has quadrupled between 1980 and 2004, it has fallen as a proportion of total developing country inflows.


Part I. The Evolving Architecture of Development Finance: A Global Perspective

Chapter 2. Resources for Development in Africa
Aid flows from OECD/DAC (Development Assistance Committee) donors have risen sharply in recent years, but debt relief, emergency assistance and other special-purpose grants accounted for a large share of the increase. Aid from traditional donors does not complete the picture, however. Non-DAC donors have increasing relevance, and non-aid flows from around the world are rapidly gaining weight. Today sub-Saharan Africa (SSA) still relies more on official flows than the rest of the developing world, but it also attracts almost as much FDI as a share of GDP as do other developing regions. For 15 SSA countries, remittances exceeded two per cent of GDP in 2004. All these diverse developments have policy implications for both donor and recipient countries.


"It is one thing to welcome debt cancellation and another to consider that lending is a bad thing in general." 

- from Chapter 3 -

Chapter 3.  After Gleneagles: What Role for Loans in ODA?

This chapter contributes to the "grants vs. loans" debate on ODA policy and makes a proposal. Cancelling of poor-country debt does not mean that the best way to give aid is through grants only. A switch from concessionary loans to grants may limit resources to the poorest countries, worsen their incentives for fiscal discipline and efficiency and raise the burden of adjustment from exogenous shocks. Aid through loans may often prove superior, provided that it maintains debt sustainability. A scheme for soft loans with higher interest rates and cancellation provisions if bad shocks occur would minimise moral hazard and strengthen debt sustainability.


Chapter 4.  Innovative Approaches to Funding the Millennium Development Goals

Despite post-Monterrey donor initiatives, the Millennium Development Goals (MDGs) remain underfinanced even as the 2015 deadline for their achievement approaches. Ideas and proposals for new finance sources abound. In evaluating them, their revenue potential, speed of availability and political feasibility have particular importance. Judged by these criteria, it is unlikely that global taxes will be introduced in time. The International Finance Facility, and regional approaches to taxation of air transport, perhaps in combination, may stand a better chance. The most straightforward way to avoid under-funding of the Goals is to raise ODA further.


 

Part II. Implications for Policy Making in Recipient Countries

"Of even greater concern than [the] inadequacy of of information is the apparent reluctance of the Ghanaian government and most donors to acknowledge the potential value of private flows for social and economic development"

- from Chapter 5 -

Chapter 5.  New Actors in Health Financing: Implications for a Donor Darling

The new multiplicity of financing options has provided alternatives for developing countries in financing their achievement of the MDGs, and it has also brought major challenges. This Chapter, drawing on the experience of Ghana’s health sector, shows both. New sources of finance may have increased the overall financial envelope, but they have also brought monitoring and co-ordination challenges. Developing countries need stronger information systems to forecast flows and to plan with them. For more effective finance, they also need co-ordination mechanisms that include the new funders. Finally, in order to take ownership of their own development process, developing countries must find ways to improve inter-ministerial co-operation and to address mismatches between budgets and spending, as well as capacity gaps.


 

Chapter 6.  Integrating Global Programmes with Country-led National Programmes: Evidence from Ghana

This Chapter examines the extent to which global programmes (GPs), as new actors in development finance, align with the principles of the Paris Declaration on Aid Effectiveness in Ghana. It finds that global programmes’ funding priorities correspond well with objectives set out in national plans and strategies, although there is a perception that in some cases the availability of GP funds leads to a distortion in national priorities. Government is taking increasing ownership of funding proposals and project development, but significant capacity gaps remain. Harmonisation between GP co-ordination mechanisms and other donor-recipient co-ordination systems remains a major challenge, particularly in the health sector. GP co-ordination challenges are greatest when inter-governmental co-ordination structures are weak. Finally, views on predictability and sustainability are highly specific to GPs.


 

Chapter 7. Different Countries, Different Needs: The Role of Private Health Insurance in Developing Countries

Provided it is carefully managed and adapted to local needs and preferences, private health insurance (PHI) can complement and help overcome the limits of traditional health financing options in low-income and middle-income countries. Those countries may be grouped in three broad regional clusters that share similar characteristics and policy challenges with respect to the role of PHI. Latin America and Eastern Europe already have developed insurance industries but face important market and policy failures. MENA’s and East Asia’s projected strong growth of PHI needs to be accompanied by efficient regulation. Finally, in South Asia and Sub-Saharan Africa, PHI will play only a marginal role in the foreseeable future, while scaling up small, non-profit insurance schemes is of critical importance.


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IN THE MEDIA

> Related Publications by the OECD Development Centre

 

 

> Related Articles by the OECD Development Centre

 

For further information, journalists are invited to contact Colm Foy (Colm.Foy@oecd.org), OECD Development Centre (tel. +33 1 45 24 84 80).

 

 

 

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