Aid alert

Development aid from OECD countries fell in 2006. What are the prospects for 2007?

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After several years of encouraging increases, development aid slumped in 2006. The 22 member countries of the OECD Development Assistance Committee (DAC), the world’s major donors, provided US$103.9 billion in aid in 2006, down by 5.1% from 2005, in constant 2005 dollars.

This figure includes $19.2 billion of debt relief, notably exceptional relief to Iraq and Nigeria. Excluding debt relief, other forms of aid fell by 1.8%.On the plus side, 16 of the DAC countries met the 2006 targets for official development assistance (ODA) that they set at the 2002 Monterrey Conference on Financing for Development. However, aid to sub-Saharan Africa, excluding debt relief, was static in 2006, leaving a challenge to meet the Gleneagles G8 summit commitment to double aid to Africa by 2010.Total ODA from DAC members came to just 0.3% of countries’ combined gross national income (GNI), well short of the 0.7% UN recommendation. It was the first fall in real terms since 1997.The fall was expected, however. ODA was exceptionally high at $106.8 billion in 2005 due to large Paris Club debt relief operations for Iraq and Nigeria. In 2006, net debt relief came to a little over $3 billion for Iraq and nearly $11 billion for Nigeria, but this aspect is now expected to taper off.The only countries to reach or exceed the UN target of 0.7% of GNI were Sweden, Luxembourg, Norway, the Netherlands and Denmark. The largest donor in 2006 was the US, followed by the UK, Japan, France and Germany.Net ODA by the US in 2006 was $22.7 billion, down 20% in real terms, and causing the ODA/GNI ratio to slip 0.17%. The US forgave all its outstanding debt with Iraq in 2005. However, net ODA flows to the least developed countries were at their highest level ever. US disbursements to sub-Saharan Africa at $5.6 billion reached a record high, again because of debt relief of $1.4 billion, but also reflecting increased disbursements for education, HIV/AIDS and malaria programmes.Japan’s net ODA was $11.6 billion, representing 0.25% of its GNI. The 9.6% fall in real terms since 2005 was partly due to exceptionally large expenditures in 2005, including relief for the Indian Ocean tsunami and debt relief to Iraq. Still, despite a slight rise in 2005, Japan’s net ODA has been declining since 2000.The combined ODA of the 15 DAC-EU members rose by 2.7% in real terms, from $55.7 billion in 2005 to $58.9 billion in 2006, and the increase was mainly due to debt relief grants.The biggest aid rise in the EU was Ireland (up 33.7%), Spain (20.3%), Sweden (15%) and the UK (13.1%). Aid provided by the European Commission rose by 5.7% to $10.2 billion. The highest fall was in Italy (-30%), though this reflected the timing of its contributions to international organisations. Other notable falls were in Finland (-9.9%) and Austria (-6.0%). Significant patterns for other DAC countries were Australia (up 22.8%), primarily due to debt relief, Canada (-9.2%), due to the decline in debt relief and a fall-back after the tsunami disaster in 2005; and Switzerland (-7%), again reflecting the lower volume of debt relief.The headline numbers for net ODA from other countries outside DAC were as follows: Chinese Taipei (3.6%); Czech Republic (6.4%), due to increased contributions to the EC; Iceland (55.3%), due to a general scaling up of Iceland’s contribution to development co-operation; and Korea (-44.6%), due to lower contributions to the World Bank and regional development banks.Net ODA from the US in 2006 reached higher levels than expected but for budgetary reasons.At the European Council in Barcelona in 2002, the then EU-15 had committed to collectively reach an ODA level of 0.39% of their combined GNI, with a minimum country target of 0.33% by 2006. The combined result was 0.43%, ahead of target. Moreover, most members reached their country target too.ODA is expected to fall back slightly again in 2007 as debt relief for Nigeria and Iraq tapers off further. Various commitments point to a rise from 2008.OECD Observer N° 261 May 2007 

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