OECD Development Co‑operation Peer Reviews: Belgium 2020

3. Belgium’s financing for development

Abstract

This chapter looks at Belgium’s official development assistance (ODA) figures, including the overall level and components of aid, the level of bilateral and multilateral aid, and the geographic and sector allocations of bilateral aid. In line with commitments to the Addis Ababa Action Agenda and the emerging concept of total official support for sustainable development (TOSSD), it also examines Belgium’s efforts to mobilise finance for sustainable development other than ODA.

This chapter begins with a review of Belgium’s ODA volumes and its efforts to meet domestic and international ODA targets. It then discusses the extent to which Belgium allocates bilateral aid according to its statement of intent and international commitments, and examines the effectiveness of Belgium’s use of multilateral aid channels. The chapter concludes with a review of financing for sustainable development and how Belgium promotes and catalyses development finance other than ODA.

In brief

Belgium is the tenth most generous member of the Development Assistance Committee (DAC) based on its official development assistance (ODA) as a proportion of gross national income (GNI). After years of sharp budget cuts, the ODA budget has been relatively stable since 2015, reaching 0.42% of GNI in 2019. Although both the public and parliament support the target established by law of allocating 0.7% of GNI as ODA, Belgium still lacks a pragmatic roadmap for returning to aid growth forecasts, a major challenge in the wake of the COVID-19 pandemic.

Bilateral allocations, mostly in the form of grants, are broadly in line with the priorities set out in the Law on Development Co-operation. In particular, they show:

• a strong focus on least developed countries (LDCs) and fragile contexts, with almost one-third of bilateral aid disbursed in these contexts

• some thematic dispersion: the main sectors are education, health, agriculture and governance, each accounting for a maximum of only 7% of bilateral aid committed in 2017-18

• a strong commitment to gender equality, with 59% of allocable bilateral ODA in 2017-18 targeting this objective

• a match between the principle of civil society organisations’ right of initiative and financing arrangements that favour aid to non-government organisations (NGOs) rather than aid via NGOs.

Allocations to multilateral organisations reflect the importance that Belgium attaches to multilateralism for effective co-operation. Through its full-core funding strategy, Belgium allocated on average 40% of its total ODA to multilateral organisations’ central budgets over the review period. In accordance with Belgium’s strategy of influence, multilateral co-operation is concentrated on the European Union (EU) and 15 international organisations.

Belgium has launched several initiatives to mobilise additional resources for development finance. These initiatives, with varying levels of success, include renouncing fiscal exemption on ODA expenditure, issuing humanitarian impact bonds and creating an investment fund within the Belgian Investment Company for Developing Countries (BIO) that is open to private investment. As BIO strengthens its performance measurement mechanisms, increased efforts to clarify each investment’s contribution to the SDGs, in addition to the recently published overall theory of change, would enhance its effectiveness.

Overall ODA volume

Belgium does not have a roadmap for increasing its aid

Belgium is the 10th most generous member of the DAC based on ODA as a proportion of GNI, and 17th in terms of volume. Belgium’s ODA budget has remained relatively stable since 2015, following successive decreases between 2010 and 2015 (Figure 3.1), but it is still a long way from the international commitment to provide 0.7% of GNI as aid. According to 2019 forecast data, the ODA budget amounted to USD 2.2 billion, i.e. 0.42% of GNI – above the DAC average of 0.30%, but a slight decrease from 2018, which is explained by the lower costs associated with receiving refugees in Belgium. With 0.14% of its GNI allocated as ODA to LDCs in 2018, Belgium is more generous than the DAC average allocation to these countries, but slightly below the 0.15–0.20% target set by the United Nations, and its performance has decreased since the previous peer review (OECD, 2015[1]).1

Figure 3.1. The Belgian co-operation budget has stabilised since 2015

Net ODA disbursements, USD million, at 2018 constant prices and exchange rates, and as a percentage of GNI

Note: *ODA on a grant-equivalent basis. **Total ODA forecast data on a grant-equivalent basis.

Source: OECD (2020[2]), Creditor Reporting System (CRS) (database), https://stats.oecd.org/Index.aspx?DataSetCode=CRS1.

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Despite public (Chapter 1) and parliamentary support for allocating 0.7% of GNI as aid, as enshrined in law,2 Belgium still has no roadmap for returning to ODA growth forecasts, despite the recommendations of the previous review (OECD, 2015[1]). Establishing a roadmap with realistic milestones and committing to not reducing further the development co-operation budget will be even more important in the wake of the COVID-19 pandemic.

Belgium is late in reporting its ODA contributions

Belgium complies with DAC recommendations on concessionality and the untying of aid. Thus, the 1.7% of aid granted in the form of loans complies with concessionality commitments. In addition, almost all bilateral aid covered by DAC recommendations is untied (98% in 2018). Despite enormous progress in terms of transparency (Chapter 5), Belgium is not yet able to report its contributions on time and does not systematically present its consolidated data (OECD, 2019[3]). The automation of reporting currently under development should make it possible to overcome this weakness.

Bilateral ODA allocations

LDCs and fragile contexts are the main beneficiaries of Belgian aid

The objective of concentrating Belgian aid on LDCs and fragile contexts is generally reflected in bilateral allocations. As such, in 2018, 31.2% of total bilateral aid was committed to LDCs and 34.5% (USD 467 million) to fragile contexts – this was above the DAC average but below the target set by the Belgian administration to allocate 50% of bilateral aid to LDCs. In contrast, the share of aid committed to LDCs accounts for 63% of allocable bilateral aid. In addition, 91% of new Enabel engagements in 2018 were in LDCs or fragile states.

Bilateral allocations are also aligned with geographic priorities. The top 20 beneficiaries of Belgian bilateral aid include 13 of its 14 partner countries and territories,3 as well as the 4 former partner countries from which Belgium withdrew in 2015 (Chapter 2). Belgium is also consistently among the top 20 donors to its partner countries and territories, ranking 13th on average among donor partners. Although partner countries and territories receive less than one-third of total bilateral aid, they receive 56% of earmarked bilateral aid per country and territory.

Country programmable aid is low

In 2018, country programmable aid accounted for only 20% of Belgian bilateral ODA, compared with an average of 48% for DAC countries, which may affect the predictability of aid for partner countries and territories. This low share is explained by the support to NGOs (23% of bilateral ODA), the cost of hosting refugees in Belgium (18%) and humanitarian and food aid (14%). It should be noted, however, that part of the financing granted to NGOs is broken down ex-post by sector and by region.

Sector allocations reflect traditional priorities and some thematic dispersion

Sector allocations reflect traditional Belgian co-operation priorities, but are also somewhat fragmented across themes. Thus, in 2017-18, the top five sectors for Belgian bilateral co-operation were: humanitarian aid (USD 175 million); education (USD 85 million); health (USD 85 million), although the share for this sector has fallen sharply since 2013;4 agriculture (USD 80 million); and governance (USD 64 million), in line with the priorities and sectors set out in the Law on Development Co-operation (Kingdom of Belgium, 2013[4]). However, with the exception of humanitarian aid, which accounted for 14% of the bilateral aid granted in 2017-18, each of the other four main sectors of Belgian co-operation accounted for a maximum of only 7% (Annex B). In comparison, administrative costs and the reception of refugees in Belgium represented 13% and 22% of bilateral aid respectively over this period, having risen sharply since 2016.5 Financial commitments for digital for development, a new priority theme, amounted to USD 18 million in 2017-18.6

Belgium stands out for its commitment to gender equality

Belgium makes a notable commitment to gender equality, with 59% of allocable bilateral ODA in 2017-18 targeting this objective, a commitment 17 percentage points higher than the DAC as a whole. Similarly, 6% of aid targets gender issues as the main objective, compared with the DAC average of 4%. Gender mainstreaming is particularly high in the reproductive health, in line with the “She Decides” initiative, water and governance sectors (Figure 3.2).

Figure 3.2. Gender mainstreaming is particularly high in the health, water and governance sectors

Percentage of allocated bilateral aid committed in 2018

Source: OECD (2020[2]), CRS (database), https://stats.oecd.org/Index.aspx?DataSetCode=CRS1.

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Environmental aid supports climate change adaptation efforts

Attention to climate, the environment and natural resources is reflected in budget allocations, with 45% of allocable bilateral aid (USD 352 million) taking environmental issues into account in 2017-18, which is above the DAC average (33%). Of these budget allocations, 80% were for climate change adaptation and mitigation.

In addition, over the 2014-19 period, Belgium has financed bilateral and multilateral climate interventions amounting to EUR 85 million per year (USD 95 million) and has focused federal contributions on adaptation efforts in LDCs. Enabel, the Belgian co-operation agency, has also been accredited by the Green Climate Fund as an implementing partner in tackling climate change.

Funding granted to NGOs respects their right of initiative

The share of funding to NGOs illustrates the importance of these actors to Belgian co-operation. In 2017‑18, gross bilateral ODA directed to or channelled through civil society organisations amounted to USD 288 million, i.e. 21% of bilateral ODA. Two-thirds of these contributions (15% of bilateral ODA) were earmarked for organisations’ global programmes, in keeping with the desire to respect these partners’ right of initiative – an approach which is recognised as good practice by the DAC.

A low proportion of aid is directed to or channelled through civil society in partner countries and territories. In 2016, direct funding from the DGD to civil society actors was suspended, following negative audits by the Court of Audits. The planned gradual resumption of this type of partnership under other arrangements will make it possible to better align budget allocations with Belgium’s stated ambitions.

Multilateral ODA allocations

Central budget contributions enhance the effectiveness of the multilateral system

Multilateral allocations reflect the importance Belgium places on multilateralism for effective development co-operation. In particular, Belgium has allocated an average of 40% of its total ODA to multilateral organisations’ central budgets, reaching 43% in 2018, which is 16 percentage points higher than the DAC as a whole. Only 14% of its bilateral ODA was channelled through (bi/multi) multilateral organisations – mainly for humanitarian aid. This low share of bi/multi aid is in line with the Belgian strategy of full core funding for the multilateral organisations listed in the 2015 Royal Decree (Kingdom of Belgium, 2015[5]). Moreover, most bi/multi contributions (57%) were only broadly pre-allocated, i.e. they did not finance a specific project, but instead multi-donor funds or programmes. In line with multilateral donor good practices, these financing arrangements are accompanied by participation in multi-donor monitoring mechanisms (MOPAN) and recognition of multilateral institutions’ monitoring, reporting and evaluation instruments (Chapter 5).

Following its reform, Enabel can now execute part of a country portfolio through multilateral organisations. At the time of the peer review, the agency had not yet finalised all of its administrative processes for signing agreements with multilateral organisations.

Multilateral co-operation is concentrated on a small number of partners

Multilateral co-operation is relatively concentrated. In line with Belgium’s strategy of influence on the multilateral stage, the European Union (EU) is by far its most important multilateral partner, accounting for 61% of Belgium’s disbursements to multilateral agencies in 2018 (USD 581 million, see Annex B). It is followed by the World Bank (18%, i.e. USD 174 million) and United Nations agencies (13%, i.e. USD 119 million). In order to streamline its aid, in 2015 Belgium reduced the number of partner multilateral organisations for development co‑operation from 20 to 15, with a separate list for humanitarian partner organisations.7 Despite the priority given to Africa, the African Development Bank (AfDB) is no longer considered a partner organisation. The strategic priority given to these 15 organisations is reflected in budget allocations: with the exception of the CGIAR and the IOM, which receive small grants despite being identified as priorities, the 15 partner organisations receive the majority of Belgian subsidies for multilateralism.

However, in addition to these 15 partners that meet its priorities and are the subject of partnership frameworks, Belgium also funds another 17 organisations through statutory contributions. As these 17 organisations are not considered strategic partners, they are not subject to strategic monitoring. In addition, the Global Environment Facility, which is not considered a priority organisation, was the third largest recipient of multilateral contributions in 2017-18, after the EU and the World Bank, with average disbursements of USD 33.7 million8 (Figure 3.3). Nevertheless, the Global Environment Facility’s mandate is in line with Belgian priorities of environmental protection and climate change adaptation.

Figure 3.3. Multilateral partner organisations are the main beneficiaries of Belgian core contributions

2017-18 ODA disbursements at 2017 constant prices – core contributions

Note: EU: European Union; GEF: Global Environment Facility; UNICEF: United Nations Children’s Fund; DPKO: United Nations Department of Peacekeeping Operations; UNDP: United Nations Development Programme; UNFPA: United Nations Population Fund; AfDB-AfDF: African Development Bank – African Development Fund; WFP: World Food Programme; FAO: Food and Agriculture Organization of the United Nations; WHO: World Health Organization; ILO: International Labour Organization; UNHCR: Office of the United Nations High Commissioner for Refugees; CERF: Central Emergency Response Fund; GPE: Global Partnership for Education; OSCE: Organization for Security and Co-operation in Europe; UNRWA: United Nations Relief and Works Agency for Palestine Refugees in the Near East; OIF: International Organization of la Francophonie; UN: United Nations.

Source: OECD (2020[2]), CRS (database), https://stats.oecd.org/Index.aspx?DataSetCode=CRS1.

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Financing for sustainable development

Belgium is seeking to mobilise ODA to leverage additional financing

Belgium is committed to the Addis Ababa Action Agenda for financing sustainable development. It contributes in particular to IMF Revenue Mobilisation Trust Funds, the OECD Tax Inspectors without Borders initiative, and IOM’s MigApp application, which aims to lower the transfer costs for migrant remittances. It has also renounced fiscal exemption on ODA expenditure in its partner countries and territories for new government co-operation portfolios. It will be interesting for Belgium to share lessons learned from its experience on this action with other DAC members, once it is further along in the process. Nevertheless, the financial volumes dedicated to domestic resource mobilisation have not doubled, despite the commitments made in Addis Ababa. In fact, they only slightly increased from USD 2.22 million in 2014 to USD 2.36 million in 2018. Finally, Belgium has issued humanitarian impact bonds in collaboration with the International Committee of the Red Cross and other development co-operation providers. Establishing these bonds proved administratively complex, especially in terms of fiduciary risk management, and mobilised just EUR 23 million, which is a small fraction of the International Red Cross’ annual budget of EUR 1.9 billion in 2019.

The contribution to the SDGs of BIO’s individual investments could be clarified

Belgium has increased the capital of its development finance institution, the Belgian Investment Company for Developing Countries (BIO) in order to support the development of small and medium-sized enterprises (SMEs) in least developed and middle-income countries. Although BIO’s mandate does not include a focus on fragile contexts, half of the countries and territories eligible for such investments are considered fragile by the OECD (OECD, 2020[6]). Over the 2017-18 period, BIO mobilised an average of USD 35 million per year through shares in collective investment vehicles, direct investments in companies or special project financing vehicles, syndicated loans, and co-financing with the private sector (OECD, 2019[7]). BIO also works with other financial institutions to increase its impact. The creation of a fund that is open to private investment (SDG Frontier Fund) and the lower than expected returns by the state on parts of BIO’s investments will make it possible to mobilise additional funds, as well as to invest in contexts or projects that are riskier, which is relevant given Belgium’s focus on fragile contexts.

As per the recommendations of the previous review (OECD, 2015[1]), BIO has strengthened mechanisms for ensuring that its investments contribute to the SDGs and Belgian co-operation objectives. Among other things, the institution has set out a general theory of change, established a new results monitoring mechanism9 and recruited a gender expert. In addition, BIO is involved in the European financial institutions’ initiative for improved consideration of cross-cutting gender and environment issues, and in the Joint Impact Model (JIM) project aimed at modelling the direct and indirect development impacts of investments. Greater efforts to contextualise each investment’s theory of change and communicate their development results would better anchor these investments in the SDGs and would meet the ambition of focusing Belgian co-operation on development results (Chapter 6).

More detailed reporting of private sector instruments may be required

Belgium reports non-ODA financial development contributions and participated in the first collection of data for total official support for sustainable development (TOSSD) in 2019. The private funds mobilised by Belgium over the 2012-18 period mainly focused on manufacturing, mining and construction industries (46%), banking and financial services (33%), and the energy sector (13%). Of the country-specific private financing mobilised over the 2012-18 period, 70% was for middle-income countries and 30% for LDCs. Finally, Belgium reports on BIO’s mobilising effect and the quality of this reporting is constantly improving.

Belgium is currently working to strengthen its reporting on private sector instruments, using the provisional methods developed by the DAC, and has recently shared data on BIO flows for 2018. However, this information did not include detailed activity-level data on additionality, terms and conditions of loans and private sector sales, dividends, maturities, or expected returns on equity (OECD, 2020[8]).

References

[5] Kingdom of Belgium (2015), Arrêté royal déterminant les partenaires de la coopération multilatérale [in French], https://www.etaamb.be/fr/arrete-royal-du-29-mai-2015_n2015015071.html.

[4] Kingdom of Belgium (2013), Loi Relative à la Coopération au Développement [Law on Development Co-operation] [in French], http://www.uvcw.be/no_index/files/240-loi-coop-au-developpement-19-03-13.pdf.

[8] OECD (2020), “Private sector instruments: Report on 2018 data and members’ ODA-eligibility assessments of their PSI vehicles”, Working document, OECD, Paris.

[2] OECD (2020), Creditor Reporting System (database), OECD, Paris, https://stats.oecd.org/index.aspx?DataSetCode=CRS1.

[6] OECD (2020), States of fragility (website), OECD, Paris, http://www3.compareyourcountry.org/states-of-fragility/overview/0/ (accessed on 15 mai 2020).

[7] OECD (2019), “Amounts mobilised from the private sector by development finance interventions”, Working document, OECD, Paris.

[3] OECD (2019), “DAC Working Party on Development Finance Statistics, DAC Statistical Reporting Issues in 2018 on flows in 2017”, OECD, Paris, http://www.oecd.org/dac/financing-sustainable-development/development-finance-standards/wp-stat.htm.

[1] OECD (2015), OECD Development Co-operation Peer Reviews: Belgium 2015, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264239906-en.

Notes

← 1.  In 2013, Belgium granted 0.16% of its GNI as aid to LDCs.

← 2.  In particular, the external relations group of the Federal Assembly passed a resolution in 2019 for reaching the 0.7% target.

← 3.  Only Guinea, identified as a priority country, is not among the top 20 recipients of Belgian bilateral aid.

← 4.  The share of bilateral aid granted to the health sector decreased from 12% in 2013-14 to 7% in 2017‑18.

← 5.  Administrative costs increased from 5% in 2015-16 to 13% in 2017-18, with refugee reception increasing from 13% to 22% over the same periods.

← 6.  Digital for development is not an official DAC sector; calculations are based on a reading of the project descriptions in the OECD Creditor Reporting System (CRS).

← 7.  See Chapter 2 for a list of multilateral partner organisations.

← 8.  Including contributions to trust funds and funds for LDCs. Humanitarian organisations are not identified in this classification.

← 9.  Entitled “Analysis, Monitoring and Evaluation of Development”.