THE FUTURE OF DEVELOPMENT FINANCE:Modernising Measures and Instruments

Ms. Suzanne SteensenManager Development Finance Architecture Unit

Statistics and Development Finance DivisionOECD Development Co-operation Directorate

Outline

Context of reform: the post-2015 era1

OECD contribution to the third Conference onFinancing for Development3

Modernisation package: the OECD DAC 2014 HighLevel Meeting agreement2

DAC donor agencies(concessional &

concessional bilateralfinance)

Privatephilanthropy(foundations

& NGOs)

Non-DAC sovereignproviders

(e.g. BRICS & MINTcountries, otherSouth-South co-

operationproviders)

Multilateral agenciesincl.

regional & Araborganisations

(concessional & non-concessional finance,

& investments)

DFIs(non-

concessionalloans &

Investments)

Export creditinstitutions

Privateactors/investors

(FDI & other privateflows at market

terms)

Sustainable development as the main objective Other objectives

The blue area illustrates the cross-border transfers to developing countries.

The SDG era: The financial architecture ofsources and instruments is more complex1

Sources of external finance beyond ODA arebecoming more prominent

0

100

200

300

400

500

600

700

800

900

1000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

USD

bill

ion

Remittances

Private grants

Bonds and securities

FDI

Export credits

OOF - excl. export credits

Total ODA

24%

17%

4%

28%

8%

18%

1%

20%

11%2%

1%

14%

29 %

23%

1

A Statistical Framework that is “Fit for Purpose”in the Post-2015 Development Finance Context

The OECD DAC statistical system should:• Promote transparency and accountability ofdevelopment finance – access to statistics is essential foran accountable post-2015 development framework.•Carry the right incentive to maximise resourcesmobilisation, their smart allocation and catalytic use.•Promote international standards for measuring &monitoring of development finance.

1

Historical decision to modernise the OECD DACframework: Outcomes of the 2014 DAC HLM

Modernise the ODA measure

Increase targeting of resources to countriesmost in need (LICs, LDCs, LLDCs, SIDS,

conflict afflicted and fragile states)

Mobilise more private finance fordevelopment

Develop a statistical measure tailored tothe SDG framework: Total Official Support

for Sustainable Development (TOSSD)

2

A. Modernising ODA

CONCESSIONALITY and REPORTING ON LOANS INODA

• New measurement system where only the grant equivalent ofODA loans (differentiation of discount rates and thresholds byincome group):• Allows better comparison between loans and grants.• A clear, quantifiable measure of concessionality, that is

tighter than what existed before.• Ensures access to ODA loans on better terms and conditions

than ever before as it incentivises concessionality.• Safeguards established to ensure ODA debt sustainability.

2

A. Before and after: ODA loans

BEFORE:FULL FACE VALUE

AFTER:ONLY THE GRANT EQUIVALENT OF A LOAN

Grant ElementThresholds

25% 45% for LDCs and other LICs 15% for LMICs 10% for UMICs

Discount Rates 10% Used for

assessing theconcessionalityof a loan

5% base (current IMF discount rate) + adjustment factors ofo 4% for LDCs and other LICso 2% for LMICso 1% for UMICs

Used for both assessing the concessionality of a loan (does itmeet the threshold?) and for calculating its ODA grant equivalentor the concessional portion of the loan.

MeasurementSystem

Positive ODAwhen disbursed,negative ODAwhen repaid

Grant equivalent of loan disbursements (grant elementmultiplied by amount disbursed).

Repayment of past loans is not subtracted from ODA but willcontinue to be collected and published.

2

B. Better targeting of ODA

Reverse declining trends of ODA to LDCs andimprove targeting to countries most in need (LDCs, LICs,SIDS, LLDCs and fragile states)

• Enhance monitoring of members’performance – individually throughDAC peer reviews and collectively atSenior Level Meetings(compendium of measures).

• Strengthen the empirical andanalytical basis for better decision-making about smart ODAallocations.

2

C. Valorising the use of private sectorinstruments

Valorise and incentivise official sector use ofinstruments with a leveraging effect by:

• Capturing the budgetary effort associated with usingmarket-like instruments (e.g. equity, risk mitigationinstruments) in ODA.

• Setting an international standard to measure themobilisation effect of official interventions andcollecting data on amounts mobilised in DAC statistics.

2

D. Total Official support for SustainableDevelopment (TOSSD)

A new comprehensive statistical measure that captures the diversity ofresource flows in support of sustainable development.

• Complements – and does not replace – ODA and will includeconcessional and non-concessional financing and capture all financialinstruments

• Cover activities that promote sustainable development, includingcontributions to GPG

• Capture international public finance and public schemes for mobilisingprivate investments

• Relevant for any provider of development finance, including privateactors that take part in blended investment schemes

Ultimate features can only be determined once the post-2015 agendahas been agreed and ongoing consultation with stakeholders beyond theDAC.

2

D. Dakar-Diamniadio Toll Highway project(blended finance)

World Bank (IDA)

African Development Fund

Agence Francaise pour ledeveloppement (AFD)

African Development Bank

World Bank (IFC)

Commercial Bank

Syndicated loan(non-concessional)

Concessional loan

Grant

Concessional loan

Already captured in the current system

To be captured in the new system

2

Concessional loan

D. Solar panel (blended finance)

Asian Development BankPrivate investor

Guarantee

World Bank(IDA)

Non-concessionalloan

Already captured in the current system

To be captured in the new system

2

Conference on Financing for Development(13-16 July, Addis Ababa)

INVESTMENT

TAX

AID

Record statistics, enhance countries engagement in theinternational tax agenda (BEPS, AEOI, illicit financial flows) and

respond to capacity needs

Need for the rightincentives tofurther unlockprivate investments(frameworks,private sectorinstruments,measurement – e.g.TOSSD)

ODA is coreand should bebetter targetedand used morecatalytically(quality of aidis essential)

3More and better aid, more and better investments and more and better tax (AIT)

Thank you!

For more information please visit our website at:http://www.oecd.org/dac/financing-

development.htm

Additional slides (Recent trends and facts)

A better incentive system for lending to poor countriesMaximum interest rates for ODA loans

6,11%

6,78%

2,55%

3,81%

0%

1%

2%

3%

4%

5%

6%

7%

8%

10 15 20 25 30 35 40Loan maturity

pre-2015

Under the newsystem: maximuminterest rates forLDCs and other LICs

Distribution of Net ODA disbursements incl. imputedmultilateral ODA to LDCs (2013)

Number of priority partnerships in LDCs

Spotlight on ODA to LDCs

DAC countries’ net ODA to LDCs as % of GNI (1960-2013) DAC countries’ net ODA to LDCs as % of GNI (2013)

* Countries with stars have reached the UN ODA target of 0.7% of GNI.

Spotlight on ODA to LDCs: DAC Members’ Performance

Total gross concessional flows toACP countries and other countries

-

10

20

30

40

50

60

70

80

90

100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

2012

USD

bill

ion

ACP Other countries

Gross bilateral ODA and multilateral outflows from DAC members and multilaterals

Composition of total gross concessional flows toACP countries

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-

20

40

60

80

100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

2012

USD

bill

ion

Grants Loans Grant share

Gross bilateral ODA and multilateral outflows from DAC members and multilaterals

- 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 5,0 5,5 6,0 6,5 7,0 7,5 8,0 8,5 9,0

USD

Bill

ion

Loans

Grants

Gross concessional flows to ACP countries:Top 20 donors

2013 Gross bilateral ODA and multilateral outflows from DAC members and multilaterals

Gross concessional flows to ACP countries:Top 20 ACP countries

-

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0U

SD B

illio

n

Loans

Grants

2013 Gross bilateral ODA and multilateral outflows from DAC members and multilaterals