These fundamental flaws of overcounting, incoherence and premature implementation of an unfinished system ramify through the ODA reporting rules, generating anomalies and inconsistencies. But instead it decided to keep on reporting these two items on the old net flow basis-so the headline ODA figure is now a mishmash of grant equivalents and flows. Logically it should then have put off introducing the grant equivalent system. But by 2018 it had failed to agree on these. In 20 respectively, the DAC had recognized that introducing grant equivalent methodology would require new rules on counting debt forgiveness, and loans to the private sector. This again biases ODA figures high.Īpart from including fictional figures for loans and equities, ODA has now become incoherent as a statistical quantity. Here the DAC decided in 2018 to hide the profit, and only report sale proceeds-which generate negative ODA entries-up to the amount of the initial investment, no matter how long ago this was or how much inflation there has been in the meantime. The other fictional figures now in ODA are for equity investments sold at a profit. Thus they cannot be corrected by any standardized adjustment. So while the DAC’s grant equivalents are systematically wrong, they are wrong by different margins for different donors and loan profiles. The DAC’s discount rates also take no account of a loan’s currency or duration, or of the actual country risk of the borrower. These high rates underestimate the present value of loan repayments, leaving inflated grant equivalents, even for loans that are actually at market terms. Yet in 2014 the DAC decided instead to use fixed discount rates of 6, 7, or 9 percent (comprising a “base rate” of 5 percent, plus a “risk margin” of 1, 2, or 4 percent, depending on the borrowing country’s per capita income). Grant equivalents are only credible if donors work out the present value of repayments using current market interest rates. It represents the loan’s value, minus the present value of its expected repayments.įormer head, DAC statistics division - OECD These are now measured not in observed flows of capital but in claimed “grant equivalents.” The grant equivalent is a model estimate of the amount being given away in a loan. One example is loans to governments and other public sector borrowers. But since 2014, DAC decisions mean that ODA is not just counting debatable items, but inventing numbers that do not exist in the real world. ODA was never perfect, and for years critics complained about the inclusion of items-such as the costs of students and refugees in donor countries-which transferred no resources to developing countries. ODA now fails to meet basic statistical quality standards. The changes have also rendered ODA incoherent as a statistical measure, making it a faulty tool for monitoring and analysis. This deprives ODA of its meaning as a gauge of aid effort, and vitiates the point of setting the U.N. The DAC has recently changed ODA reporting rules to include transactions that require no financial sacrifice. set a target for ODA of 0.7 percent of donors’ national income. To qualify as ODA, transactions had to be “concessional in character,” i.e., to give something of value away. In 1969, the OECD’s Development Assistance Committee (DAC) created official development assistance (ODA) as a measure of foreign aid effort.
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