New OECD measure for aid highly problematic, says study

A study questions the need for and potential effectiveness of a new gauge of development aid being formulated by the OECD grouping of rich-country donors.

by Kanaga Raja

GENEVA: The proposed Total Official Support for Sustainable Development (TOSSD), a new statistic being developed by the Organization for Economic Cooperation and Development (OECD) club of donors to measure their contribution towards the Sustainable Development Goals (SDGs), comes with no commitments, no responsibility and no expectations attached, a new study has charged.

Putting attention into creating, calculating and reporting TOSSD could easily distract donor countries from existing Official Development Assistance (ODA) commitments and their historical responsibilities, the study stressed.

The study, in the form of a working paper titled “New Development Finance Measure Should Be TOSSD Out the Window!”, was authored by Neissan Besharati, the African coordinator of the Network of Southern Think-Tanks (NeST) and a senior researcher at the South African Institute of International Affairs.

According to the study, TOSSD, although still a work-in-progress, endeavours to count all financial flows (public and private, concessional and non-concessional) from traditional and emerging donors aimed at supporting global public goods and sustainable development.

“TOSSD stretches the boundaries of its predecessor, Official Development Assistance (ODA), the long-standing statistical term for foreign aid,” it said.

“The problem with the new measure is that, once again, it is being created without consulting the main beneficiaries. In fact, developing countries didn’t even ask for this new statistic,” said Besharati.

The study pointed out that the concept of TOSSD originated from and was driven by discussions within the OECD Development Assistance Committee (DAC). But in June 2015 at the third UN Conference on Financing for Development in Ethiopia, TOSSD crept into the text of the Addis Ababa Action Agenda, when countries agreed “to hold open, inclusive and transparent discussions on the modernization of the ODA measurement and on the proposed measure of total official support for sustainable development”.

Unfortunately, said the study, the process has not been open, inclusive or transparent.

The details of TOSSD have been written up by OECD technocrats, while most of the consultations between 2015 and 2016 were held among a small circle of wealthy countries, with token representation from the rest of the (developing) world, where 80% of the population of the planet actually reside.

It seems that Northern donors have still not learnt from their past mistakes with ODA, Besharati underlined.

“The old measurement contains many flaws, such as counting in-donor costs like administrative and marketing expenditures, refugee and student support, and aid tied to products, services and institutions from the provider country. Nonetheless, ODA remains a useful indicator of rich countries’ generosity towards poor countries.”

“TOSSD is a sexy new measure, but it comes with no commitments, no responsibility and no expectations attached. This makes the global South very suspicious. Putting attention into creating, calculating and reporting TOSSD could easily distract donor countries from existing ODA commitments and their historical responsibilities,” the study warned.

New spending items

The architects of TOSSD have stated that the new measure is about cross-border flows and will not include in-donor costs. However, said Besharati, the recent debates around TOSSD have seen many OECD donors pushing for new spending items which they would like to report in the new measure, so they can say that they are giving more towards sustainable development than they currently are.

In 1988 the DAC decided that the first year of in-country refugee support could be counted as ODA, and since then this has become common practice in aid reporting. With the new wave of Syrian and African refugees flooding Europe, EU governments are strongly advocating for support to refugees beyond the first year to also be included in TOSSD.

ODA was the main development finance measure for industrialized countries’ contribution to the Millennium Development Goals (MDGs), and now TOSSD is seen as the new measure to be used for the SDG framework.

The study noted that in contrast to the MDGs, the SDGs do not apply only to developing countries but to all countries, regardless of economic status. Thus, to qualify as TOSSD, an expenditure needs to be either “for the benefit of developing countries” or “for global public goods”.

“This however opens a can of worms on what to count and what not to count as TOSSD,” it said.

Donor countries in fact have argued that many domestic expenditures such as scientific and health research, education and capacity-building programmes, national efforts to reduce greenhouse gas emissions, assistance to political and economic migrants, or anything else which indirectly contributes to global development may potentially be counted as TOSSD.

By the same token, asked Besharati, should points be subtracted from TOSSD when domestic policies of OECD countries hurt developing countries, such as high carbon emissions, agricultural subsidies and illicit financial flows?

According to the study, another concern with TOSSD is that the OECD wants to also include all non-concessional loans in the new measure.

“If a financial institution from a Northern country is providing a loan on commercial terms and making profits from the misfortunes of poor beneficiaries, how can this be considered ‘support to sustainable development’?”

The study also said that including publicly-mobilized private financing in the new statistic is very ambiguous as it opens the possibility for blended finance, public-private partnerships, private capital raised by state-owned enterprises, and financing where the state has minimal involvement (such as reducing interest rates, providing guarantees even though they are never used), to be included as TOSSD.

“This opens the door for governments to take credit for investments made by private financiers, and for donor countries to count as TOSSD the support they provide to their own profit-making private sector,” it cautioned.

“Mutual benefit”

Another dangerous trend observed in the initial TOSSD proposals is the use of the rhetoric of “mutual benefit” which has traditionally been part of the discourse of South-South cooperation. The principle behind mutual benefit in cooperation between developing countries legitimizes domestic interests of Southern partners, as both countries endeavour to reduce poverty in their respective territories through the development cooperation arrangement.

“This modus operandi, however, is utterly inappropriate to apply to North-South cooperation, which comes from a different tradition and carries a different set of historical responsibilities that developed countries have towards the global South.”

According to Besharati, while it may be acceptable for a lower-middle-income country like India (with 60% of its population living under the international poverty line) to provide non-concessional lines of credit to other developing countries – tied to its companies, products and technical experts in the name of “mutual benefit” – it would be unacceptable (and almost ridiculous) if the United States or Germany acted under the same paradigm.

The study further noted that although traditional donors would very much like the providers of South-South cooperation to also be part of the new TOSSD reporting effort, the BRICS and other emerging economies have not shown any appetite for this new statistic and have made it clear that they do not want to be part of yet another DAC-led initiative.

“Instead of succeeding in bringing emerging donors into the narrative of traditional donors, TOSSD is rather an illustration of the ‘Southernization of the DAC’,” the study said.

“TOSSD is opening up debate not only on commercial flows, but also on political, cultural and religious cooperation. Should we start counting the language classes of Alliance Francaise or the mosques that Turkey builds in developing countries as TOSSD as well?”

Under the old regime, only 7% of non-military contribution to UN peacekeeping operations was counted as ODA. But in Agenda 2063 – Africa’s 50-year development vision – the continent has made clear the central role that peace and stability play in its long-term development. From an African perspective, therefore, humanitarian, safety and capacity-building operations conducted by security forces of a provider country upon request of a recipient country should be also counted as “support to sustainable development”.

Nonetheless, said Besharati, many gray areas still remain, such as the fight against international crime and trafficking, intelligence gathering and counter-terrorism activities.

Are these really global public goods and who defines them as such, he asked.

External interventions in the arena of security, governance and human rights are always politically sensitive, as they often imply infringement on national sovereignty and can therefore be questioned in terms of legitimacy.

This is why financing of these activities should be counted as TOSSD only if the interventions have been mandated by the UN or other regional bodies, such as the African Union, the Arab League or the Organization of American States.

According to the study, accounting for the “inputs” towards sustainable development is certainly important, but most people and countries are more concerned with the “outcomes” of development efforts.

“However, these are not well captured by the TOSSD framework. The excessive focus on financial inputs overshadows other non-financial contributions that are equally important, such as technology transfer, knowledge exchange and technical assistance.”

The problem with comparing technical cooperation from different countries is that its value varies depending on the salaries and prices in each economy. “One million dollars of goods and services in China gets you a lot more than a million dollars of goods and services from Switzerland.”

This is why the proposal to use purchasing power parity (PPP) when calculating TOSSD from different countries is a welcome new feature of the proposed metric, said Besharati.

The study also pointed out that one big flaw of ODA statistics is that data are gathered primarily from the donors’ own reporting systems, which are easily susceptible to the inflation of figures.

The draft TOSSD compendium document put out by the OECD for public consultation in June 2016 suggests that data are collected from both provider as well as recipient perspectives.

But some have argued that this might place an unnecessary burden on already weak statistical systems of developing countries.

“What is clear is that if accounting is done by both providers and recipients, the figures are unlikely to match, as donors are typically incentivized to report more than what they actually give (so they can look better). For this reason, one should give primacy to data supplied from the beneficiaries of TOSSD transfers, rather than the providers,” the study emphasized.

Need for TOSSD?

Overall, said Besharati, it is still unclear what the difference is between TOSSD, ODA and Other Official Flows or indeed if there is a need at all for a new development finance statistic.

“Without a clear target, it is hard to see how the new measure of TOSSD can incentivize the mobilization of more resources in support of the sustainable development agenda, as it claims to do.”

The stated purpose of TOSSD is “to promote greater transparency of the full array of external officially-supported resources available to developing countries”.

While there certainly should be better information available on different development finance flows, is a new “composite measure” needed, for rich countries to inflate their numbers and have a false beauty contest on how much they are each contributing to the SDGs, Besharati asked.

If the discussions around TOSSD are going to continue in any legitimate manner, these have to take place in a forum more inclusive of developing-world views, but also of private funders who are expected to participate in the new reporting scheme, he said.

Before investing more energy into TOSSD, he added, the OECD needs to go back to improving Country Programmable Aid (CPA, a 2010 initiative of the OECD) and ensure that all DAC countries reach their historical commitment of allocating 0.7% of gross national income to ODA.

In addition, a far better use of the time and resources of OECD experts would be to improve national systems and statistical capacities directly within the developing countries themselves, he suggested.

“These two lines of action would certainly be a better contribution the OECD could offer to the 2030 global development campaign,” Besharati underlined. (SUNS8382)                                   p