The DAC has measured resource flows to developing countries since 1961. Special attention has been given to the official and concessional part of this flow, defined as “official development assistance” (ODA). The DAC first defined ODA in 1969, and tightened the definition in 1972. ODA is the key measure used in practically all aid targets and assessments of aid performance.
The ODA grant equivalent is a measure of donor effort. Grants, loans and other flows entering the calculation of the ODA grant equivalent measure are referred to as ODA flows.
Official development assistance flows are defined as those flows to countries and territories on the DAC List of ODA Recipients and to multilateral development institutions which are:
provided by official agencies, including state and local governments, or by their executive agencies; and
each transaction of which:
is administered with the promotion of the economic development and welfare of developing countries as its main objective; and
is concessional in character. In DAC statistics, this implies a grant element of at least (see note 4)
45 per cent in the case of bilateral loans to the official sector of LDCs and other LICs (calculated at a rate of discount of 9 per cent).
15 per cent in the case of bilateral loans to the official sector of LMICs (calculated at a rate of discount of 7 per cent).
10 per cent in the case of bilateral loans to the official sector of UMICs (calculated at a rate of discount of 6 per cent).
10 per cent in the case of loans to multilateral institutions (see note 1) (calculated at a rate of discount of 5 per cent for global institutions and multilateral development banks, and 6 per cent for other organisations, including sub-regional organisations) (see notes 2 and 3).
Loans whose terms are not consistent with the IMF Debt Limits Policy and/or the World Bank’s Non-Concessional Borrowing Policy are not reportable as ODA.
ODA grant equivalent measure
The ODA grant equivalent measure is calculated for ODA flows, as defined above. For loans to the official sector which pass the tests for ODA scoring [conditions i) and ii) above], the grant equivalent recorded as ODA is obtained by multiplying the annual disbursements on the loan by the loan’s grant element as calculated at the time of the commitment (see note 4).
This includes both loans in the form of core contributions to multilateral institutions (classified as multilateral ODA), loans channelled through multilateral institutions (classified as bilateral ODA), and loans to trust funds administered by these institutions.
The definition of concessionality remains to be clarified for other types of loans [e.g. loans to the private sector], and other non-grant instruments (e.g. equity). Pending clarification, the criterion “is concessional in character and conveys a grant element of at least 25 per cent (calculated at a rate of discount of 10 per cent)” remains in force for these instruments. See Addendum 3 for the reporting methods for PSI.--
Discount rates consist of a base factor of 5%, which is consistent with the discount rate that IMF used in 2014 for calculating IMF grant element, and an adjustment factor of 1% for UMICs, 2% for LMICs and 4% for LDCs and other LICs. There is no adjustment factor for loans to global institutions and multilateral development banks, and an adjustment factor of 1 per cent for loans to other multilateral organisations, including sub-regional organisations. The DAC will regularly assess the need for adjusting discount rates, in particular following any change to the IMF rate.
The method for calculating ODA grant equivalent has so far been defined for bilateral loans to the official sector and for loans to multilaterals, not for loans to the private sector. The approach for measuring the donor effort in the use of private-sector instruments has not been agreed yet and is therefore not reflected in this interim version of the Directives. See Addendum 3 for the reporting methods of PSI on a cash flow basis.
Over the years the DAC has continuously refined the detailed ODA reporting rules to ensure fidelity to the definition and the greatest possible consistency among donors. The boundary of ODA has been carefully delineated in many fields, including:
Military aid: No military equipment or services are reportable as ODA. Anti-terrorism activities are also excluded. However, the cost of using donors’ armed forces to deliver humanitarian aid is eligible.
Peacekeeping: Most peacekeeping expenditures are excluded in line with the exclusion of military costs. However, some closely-defined developmentally relevant activities within peacekeeping operations are included.
Nuclear energy: Reportable as ODA, provided it is for civilian purposes.
Cultural programmes: Eligible as ODA if they build the cultural capacities of recipient countries, but one-off tours by donor country artists or sportsmen, and activities to promote the donors’ image, are excluded.