Chapter

IV New Official Financing Flows to Developing Countries

Author(s):
International Monetary Fund
Published Date:
December 1995
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Official bilateral financing remains an important source of finance for developing countries, particularly those low-income countries with heavy debt burdens and limited access to international capital markets. However, systematic differences in the statistics derived from debtor and creditor sources and in their coverage of the various instruments make it difficult to analyze the flows (see box 11).42 Never-theless, some trends in official flows to developing countries are apparent.

Trends in Total Official Financing

Total net official development finance (ODF, comprising total official flows excluding officially supported export credits) from bilateral and multilateral institutions fell by around 5 percent in nominal terms in 1994 to $66 billion, after having remained relatively constant at around $70 billion between 1990 and 1993 (Table 10)). After adjusting for inflation and exchange rate changes, a downward trend in the real level of total ODF in recent years is apparent, with a decline of almost 16 percent by 1994 from the recent peak in 1990 and a decline of 30 percent by 1994 from the earlier peak in 1985 (Chart 6) 43. The fall in ODF in recent years was due to declines in both multilateral and bilateral net flows, particularly in non-ODA flows, or “other ODF.” Chart 7 shows the direction of flows in 1994.

Net bilateral ODF fell from a peak in 1992 of $49 billion to $45 billion in 1994, as a result of a $3½ billion fall in other ODF (Table 10). The ODA component of bilateral Hows peaked in 1991 at $42 billion, and fell by $1 billion between 1992 and 1994. reflecting reduced ODA flows from countries belonging to the OECD’s Development Assistance Committee (DAC) (Table 11, and below).44

Since 1990, net ODF disbursements from multilateral institutions fell by $3 billion to just under $21 billion in 1994 (Table 10). While the ODA component rose sharply over this period, other ODF flows fell from a peak of $10 billion in 1990 to $3 billion in 1994. However, the trend in multilateral financing is not clear as it has fluctuated significantly in recent years, primarily because of the large shifts in other ODF to countries in Latin America from the World Bank and the Inter-American Development Bank. Contributions to multilateral institutions from DAC countries reported as ODA peaked in 1992 at just under $20 billion (Table 11) and declined by $2 billion in 1993/94.

The decline in other ODF in recent years reflects the growing role of private flows in replacing noncon-cessional borrowing from official sources in those countries with access to international capital markets. Also, it reflects a trend toward more concessional official financing for the poorer countries with limited debt-servicing capacity (see below).

The distribution of gross bilateral official flows (ODF pins officially supported export credits) among developing countries shows an increase in the share of financing of upper middle-income and high-income countries in 1992 and 1993 compared with the period between 1989 and 1991. at the expense of least-developed, low-income, and lower middle-income countries (Table 12). This reflected increased non-ODA flows (including official export credits) to some upper middle-income and high-income developing countries in Latin America, Asia, and the Middle East, and a lower share of financing to low-income and least-developed countries in sub-Saharan Africa (particularly because of sharply lower non-ODA flows to Nigeria).45 Low-income and lower middle-income countries in Asia experienced a significant increase in official Hows (mainly non-ODA) in 1992 and 1993 compared with the period between 1989 and 1991, particularly to China, India, Indonesia, and the Philippines. However, the share of total official flows to all low-income and lower middle-income countries declined because of a sharp decline in flows to several countries in North Africa and the Middle East included in these income groups (particularly Egypt, the Islamic Republic of Iran, and Turkey), which more than offset the increased flows to Asian countries in these income groups.

Box 11.Data Sources and Definitions for Official Financing Flows

The World Bank and the Organization for Economic Cooperation and Development (OECD) are the main compilers of data on official financing flows. World Bank data—published annually in the World Debt Tables—are derived from a debtor-based information system. Disbursements of officially insured credits are classified as disbursements from banks or suppliers and, as a result, official bilateral support is understated. The coverage of military debt is not comprehensive.

The World Bank definition of developing countries includes all low-income and middle-income countries (except economies with a population of less than 30,000), including countries in transition. The 1994—95 World Debt Tables included 137 developing countries that reported data to the World Bank.

OECD Development Assistance Committee (DAC) data—published in the Geographic Distribution of Financial Flows to Aid Recipients—are derived from creditor sources. The data are, however, available only with a considerable lag: as of August 1995, estimates for aggregate net disbursements were available for 1994, while the comprehensive individual country data were available only for 1993.

The OECD defines official development assistance (ODA) as grants or loans to developing countries on Part 1 of the DAC list of aid recipients that are undertaken by the official sector with promotion of economic development and welfare as the main objective, and are extended at concessional terms (with a grant element of at least 25 percent). The grant element is defined as the difference between the face value of a loan and the present value, calculated at a discount rate of 10 percent, of the service payments to be made over the lifetime of the loan, expressed as a percent of the face value. For example, the grant element is nil if the loan carries an interest rate of 10 percent: it is 100 percent for a grant: and it lies between these two limits for a soft loan. It is widely acknowledged that there are problems associated with the use of a fixed discount rate of 10 percent, as discussed in Annex III of Officially Supported Export Credits: Recent Developments and Prospects. World Economic and Financial Surveys (Washington: International Monetary Fund, March 1995). Other official development financing comprises flows for development purposes that have too low a grant element to qualify as ODA. It should also be noted that the definition of other official development financing excludes officially supported export credits, since export credits are regarded as primarily trade promoting rather than development oriented. IMF financing from the General Resources Account is excluded, while financing from the Trust Fund, structural adjustment facility (SAF), or enhanced structural adjustment facility (ESAF) is included. Official development financing (ODF) is the sum of ODA and other official development financing.

The OECD definition of developing countries includes those countries on Part I of the DAC list of aid re-cipients (see Geographical Distribution of Financial Flows to Aid Recipients, 1989-93 (Paris: OECD), p. 249). This includes more than a dozen countries that the World Bank considers high-income countries, including Bermuda, Israel, and Singapore, as well as some low-and middle-income countries with populations below 30,000. The OECD classification of developing countries excludes, but the World Bank includes, most of the countries in transition in Eastern Europe (Bulgaria, the Czech Republic, Hungary, Poland, Romania, and the Slovak Republic) and the Baltic countries, Russia, and some other countries of the former Soviet Union (Belarus, Moldova, and Ukraine). These countries are on Part II of the DAC list of aid recipients.

The differences in coverage and definition make World Bank and OECD data incompatible. For example, the OECD recorded net ODF from multilateral institutions to developing countries as $21 billion in 1994 (Table 10), while the World Bank recorded significantly lower net disbursements from multilateral institutions to all countries, at $14 billion in 1994 (Table 15). Part of the explanation for this difference lies in the different definition of multilateral institutions and the treatment of grants. For instance, the OECD includes significant grants from UN agencies and the EU in ODF from multilateral institutions while the World Bank does not record these flows in the multilateral category (it uses instead the total OECD grant figure when calculating total flows to all countries).

Data on officially supported export credits are compiled by the OECD, the OECD and Bank for International Settlements (BIS) together, and the Berne Union, each with different concepts and coverage.

This section relies primarily on OECD (DAC) data.

Net official financing Hows to countries in transition (not included in developing countries) remained large in recent years (see Box 12).

Developments in Total Net ODA in Recent Years

ODA has become increasingly the most significant instrument of official development financing, comprising 90 percent of total ODF in 1994 in net terms (Table 10), a rise of 10 percentage points over 1989. The share of ODA in net multilateral flows has risen sharply—by 20 percentage points since 1989—to reach 85 percent, although it remains below the ODA share in net bilateral flows (92 percent).

Table 10.Total Net Official Financing Flows to Developing Countries, 1988-94
1988198919901991199219931994 1
(In billions of U.S. dollars)
Official development finance (ODF)261.160.969.769.669.769.565.7
Official development assistance (ODA)347.748.852.858.558.756.258.9
Other13.412.116.911.111.013.36.8
Bilateral43.641.746.046.748.646.045.0
ODA336.636.439.342.341.239.641.3
Other7.05.36.74.47.46.43.7
Multilateral417.519.223.722.921.123.520.7
ODA11.112.413.516.217.516.617.6
Other6.46.810.26.73.66.93.1
(In percent of total ODF)
Bilateral71.468.566.067.169.766.268.5
ODA359.959.856.460.859.157.062.9
Other11.58.79.66.310.69.25.6
Multilateral28.631.534.032.930.333.831.5
ODA18.220.419.423.325.123.926.8
Other10.511.214.69.65.29.94.7
(In billions of U.S. dollars)
Memorandum items
ODF (at 1993 prices and exchange rates)72.673.074.772.268.169.563.0
Total net flows 598.0115.6126.2122.2147.8162.7175.0
Net official financing to countries in transition 68.114.511.412.4
Of which: net official aid1.87.36.76.87.2
(In percent)
ODA share of respective ODF
Total78.180.175.884.184.280.989.6
Bilateral83.987.385.490.684.886.191.8
Multilateral63.464.657.070.782.970.685.0
Source: Organization for Economic Cooperation and Development (OECD).

Total net ODA (including contributions to multilateral institutions) from countries belonging to the DAC increased from $56’A billion in 1993 to $58 billion in 1994, but remained below the historical peak of $61 billion in 1992 (Table 11).46 Adjusting for inflation and exchange rate fluctuations, net ODA declined in 1994 by 2 percent, and the ratio of net ODA to donors’ gross national product (GNP) declined to 0.29 percent (Chart I), the lowest level since 1973. However, despite the recent declines, ODA in 1994 was around 8 percent above the average for the mid-1980s in real terms (i.e., at constant (1993) prices and exchange rates).

Chart 6.Net ODF 1 Flows to Developing Countries, 1980-94

Source: OECD, as in Table 10.

1 Official development finance.

2 Provisional.

Bilateral ODA from DAC countries peaked in 1991 at $41 billion and felt by 3 percent to $40 billion in 1994 (Table II). In real terms, the decline in bilateral ODA was more marked—a fall of 11 ½ percent from 1991 to 1994. As a percent of GNP, bilateral ODA fell to 0.20 percent compared with the plateau of 0.23-0.24 percent between 1988 and 1992.

DAC countries’ contributions to multilateral institutions peaked at just under $20 billion in 1992 (Table 11), before declining to around $17½ billion in 1993/94—a decline in real terms of around 11 percent.

Six of the ten largest DAC donors recorded falls in the real level of total net ODA disbursements in 1994, with Italy recording a dramatic fall—36 percent of the 1993 level (in 1993 prices and exchange rates), or more than $1 billion (Table 13). The falls were offset, in part, by a large increase in ODA from Japan (almost $0.9 billion in 1993 prices and exchange rates), and smaller increases from three other major donors (Denmark, France, and the United Kingdom).

The main reason for the decline in the real level of ODA in recent years was budgetary constraints in many donor countries.47 These are likely to continue for the near future as most of the major donor countries, with the exception of France, Japan, and the Netherlands, are budgeting a reduction in aid as a share of their gross domestic product (GDP) in the near term and—in some cases—also a significant decline in real terms. In addition, since 1990, the increased demands for aid from the countries in transition, most of which are not included in the group of developing countries, were a factor in reducing the flows to developing countries (see Box 12). Special factors in recent years included reduced flows to multilateral development banks due to the timing of replenishment cycles, delays in replenishing the African Development Fund, the absence of large debt forgiveness and reorganizations (see Box 13), and lower ODA expenses on emergency assistance to refugees in the donor countries.48

There has been a trend toward more concessional terms for ODA from DAC countries over the past decade. The average grant element of total ODA for the ten largest DAC donors increased from around 91 percent in 1981 and 1982 to 94 percent in 1992 and 1993.49 Several donors are now extending aid almost exclusively in the form of grants, particularly to the least-developed countries, where the grant element of ODA for the ten largest DAC donors averaged 98 percent in 1992 and 1993. Only two DAC donors (Japan and Spain) recorded a grant element for total ODA of less than 85 percent in 1992 and 1993.

Although data on flows from non-DAC donors are limited, net ODA from non-DAC donors (mainly Arab countries) apparently fell substantially from the peak in 1990 (see intra-developing country flows and other flows in the memorandum items of Table 11), reflecting tighter budget constraints in the aftermath of the Middle East hostilities of 1990 and 1991. Official financing from new sources, such as China, Korea, and Taiwan Province of China, remained small relative to total flows (Chart 7).

Developments in the Direction of Gross Disbursements of Bilateral ODA

Changes in the regional pattern of gross disbursements of bilateral ODA have been dominated by a large decline in the share of ODA to North Africa and the Middle Hast (by 10½ percentage points between 1991 and 1993) (Table 12). This was primarily due to reduced flows to Egypt following large flows in 1990 and 1991 (which included significant debt relief). In turn, the shares of ODA to Asia, Europe, and sub-Saharan Africa recorded significant increases between 1991 and 1993. ODA to European countries also rose as a result of a significant increase in assistance to the successor states of the former Socialist Federal Republic of Yugoslavia, including emergency and distress relief.

Chart 7.Direction of Net Official Flows in 1994

Sources: Tables 10 and 11; and IMF staff estimates.

1 In earlier years, multilateral disbursements (including those from the IMF) differed from OECD Development Assistance Committee countries’ contributions to multilateral institutions.

2 Mostly Arab countries.

3 Receipts of official financing reported by some country authorities suggest that the OECD figures may understate the flows.

The distribution of bilateral ODA by income group of recipients since 1989 and 1990 shows an increase in the share of lower middle-income countries (by around 5 percentage points) in part due to increased emergency flows to the successor states of the former Socialist Federal Republic of Yugoslavia: this was largely at the expense of least-developed countries: their share declined by 3½ percentage points. The sharp increase in the share of low-income countries in 1991 was subsequently reversed, mainly due to reduced Hows to the low-income countries in the Middle East and North Africa (Table 12). There was little change in the income distribution of ODA between 1992 and 1993, with low-income and lower middle-income countries each accounting for between 27 percent and 28 percent of ODA in 1993, and least-developed countries accounting for almost 20 percent in 1993.

The developments in flows by region and income groups mask important trends in support for countries undertaking sound economic adjustment programs (see Box 14).

Recent Major Trends in Bilateral Aid Donor Policies

Donors are attempting to reshape aid policies and practices50 following the dramatic political changes in recent years—the end of the Cold War, new claims on aid from the countries in transition, and new demands such as emergency assistance (Box 15)—and in response to domestic pressure to reduce aid budgets. With decreased emphasis on geopolitical concerns, donors see greater scope to adapt aid policies to be more consistent with the basic objective of aid, namely, promotion of long-term economic development and welfare in developing countries, with a renewed focus on reducing poverty and encouraging good governance.

Table 11.Net ODA Disbursements from DAC Countries. 1988-94
1988198919901991199219931994 1
(In billions of U.S. dollars)
Total net ODA47.145.753.056.760.956.457.8
Bilateral ODA 231.932.937.241.341.239.340.2
Contributions to multilateral institutions315.112.815.815.419.617.117.6
Total net ODA (at 1993 prices and exchange rates)57.056.157.259.259.556.455.4
Bilateral ODA39.340.940.443.540.539.338.5
Contributions to multilateral institutions17.715.216.815.719.017.116.9
(In percent of donors’ GNP)
Total net ODA0.340.320.330.330.330.310.29
Bilateral ODA0.230.230.240.230.240.210.20
Contributions to multilateral institutions0.110.090.090.100.090.100.09
(In percent of total)
Distribution 4
Net ODA by income group
Least-developed countries29.929.227.325.626.626.4
Low-income countries25.626.427.628.927.925.2
Lower middle-income countries17.617.822.422.722.924.7
Upper middle-income countries2.93.33.63.12.33.6
High-income countries4.34.23.64.04.53.7
Unallocated19.719.115.415.715.716.4
Net ODA by region
Sub-Saharan Africa32.132.830.828.531.130.8
North Africa and the Middle East10.910.219.919.514.912.0
Asia26.627.322.724.125.925.2
Western Hemisphere9.510.39.29.79.19.8
Europe 51.20.82.53.63.85.7
Other 619.618.614.814.515.116.5
(In billions of U.S. dollars)
Memorandum items
Total net ODA to developing countries 747.748.852.858.558.756.258.9
DAC countries 231.932.937.241.341.239.340.2
Multilateral institutions’ disbursements11.112.413.516.217.516.617.6
Other 84.73.52.11.0-0.31.1
Total intra-developing country
flows (net ODA)92.21.76.02.61.01.21.2
Source: OECD.

Donors’ decisions on aid to individual recipients are influenced by numerous, often conflicting, factors. While many donors have established criteria to assess the recipient countries’ policy performance, they retain the flexibility to weigh the importance of any perceived shortcoming in performance against factors such as the strategic importance of the country or the extent of historical, political, and economicties.

Table 12.Gross Disbursements of Official Bilateral Financing from DAC Countries by Region and Income Group, 1989-93
19891990199119921993 1
(In percent of group total)
Gross bilateral official disbursements 2
By region
Sub-Saharan Africa20.121.517.216.715.3
North Africa and the Middle East21.322.228.418.917.9
Asia25.925.323.729.133.7
Western Hemisphere18.118.017.022.318.9
Europe4.03.43.73.63.6
Other (Oceania and unallocated)10.79.710.19.510.6
By income group
Least-developed countries12.814.412.611.711.2
Low-income countries29.026.430.224.927.4
Lower middle-income countries30.831.229.129.528.5
Upper middle-income countries13.213.712.117.215.2
High-income countries4.64.55.76.98.2
Unallocated9.79.810.49.79.5
Gross bilateral ODA disbursements 3
By region
Sub-Saharan Africa27.831,122.424.924.2
North Africa and the Middle East12.116.126.116.615.5
Asia29.124.922.027.726.2
Western Hemisphere10.69.512.410.512.7
Europe2.02.73.33.74.2
Other (Oceania and unallocated)18.315.713.716.617.1
By income group
Least-developed countries22.922.718.219.619.4
Low-income countries28.328.736.128.328.1
Lower middle-income countries20.823.323.225.326.9
Upper middle-income countries5.14.94.04.65.2
High-income countries5.65.04.76.14.7
Unallocated17.515.413.816.215.7
(In billions of U.S. dollars)
Memorandum items
Gross bilateral ODA disbursements 336.344.755.749.248.4
By region
Sub-Saharan Africa10.113.912.512.311.7
North Africa and the Middle East4.47.214.68.27.5
Asia10.611.112.313.612.7
Western Hemisphere3.94.36.95.26.2
Europe0.71.21.81.82.0
Oceania1.31.21.21.41.4
Unallocated5.45.86.46.86.9
Source: OECD. Geographical Distribution of Financial Flows to Aid Recipients.

The pressure on aid budgets, and growing public concerns reported by some donor countries about aid money being wasted, have led donors to intensify their efforts to improve the effectiveness of aid,51 Donors have also responded to the criticism at the grassroots level that aid does not reach those in need by placing more emphasis on providing aid through nongovernmental organizations (NGOs) that take a grassroots approach.52

Box 12.Official Financing Flows to Countries in Transition

Countries in transition not included in the DAC list of developing countries1 (and not included in ODF) increased their share of official financing from OECD countries in recent years. They received around $12½ billion in official aid and other official financing (including officially supported export credits) in 1993 (Table 10), though this is below the peak level of 1991 ($14½ billion).2 Almost half of the 1993 flows were in the form For the Baltic countries and the other countries of the former Soviet Union other than Russia, official flows from OECD donors were small in 1993 relative to the flows received from the Russian Federation in earlier years. The flows received from the Russian Federation by other countries (excluding the Baltic countries) in 1992 were equivalent to around 20 percent of these countries’ combined GDP and in some cases (Georgia, Tajikistan, Turkmenistan, and Uzbekistan) amounted to one third or more of estimated GDP; these flows declined in 1993 and 1994.

1 Belarus, Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Moldova, Poland, Romania, the Russian Federation, the Slovak Republic, and Ukraine. These countries are on Part II of the DAC list of aid recipients, whereas Part [ includes developing countries.2 Receipts of official financing reported by some country authorities suggest that the OECD figures may understate the flows. Also, OECD data exclude flows between countries in transition. of official aid.3 Poland, the Russian Federation, and Ukraine received the bulk of these flows.3 Official aid is defined by the DAC to mean flows that meet the conditions of eligibility for inclusion in ODA, except that the recipients are on Part II of the DAC list of aid recipients. This covers flows from the official sector with promotion of economic development and welfare as the main objective, and with a grant element of at least 25 percent (at a discount rate of 10 percent).

Poverty Reduction

Donors reported that their increased focus on poverty reduction has taken two main forms: an increasing concentration on support for low-income countries pursuing sound policies to encourage economic growth, particularly employment growth; and support for projects and programs aimed at poverty reduction.

The focus on poverty reduction at a time of hardening budget constraints has led donors increasingly to concentrate aid on low-income countries among the traditional aid recipients. Several donors have narrowed the list of aid beneficiaries by graduating countries that have achieved a higher income level and arc benefiting from trade and private capital inflows. In some cases, the demand for aid from these better-performing countries has been reduced, particularly as the private sector has become involved in the provision of economic infrastructure.

Table 13.Net ODA Disbursements by Major DAC Donors, 1989-94
At 1993 Prices andChange 1993/94
At Current PricesExchange ratesAt currentAt 1993 pricesDonor’s GNP
198919901991 11992 11993 11994 21994 2pricesand exchange ratse1994 2
(In millions of U.S. dollars)(In percent)
Canada2.32.52.62.52.42.22.3-6.0-1.10.42
Denmark0.91.21.21.41.31.51.48.22.51.03
France5.87.27.48.37.98.48.26.73.20.64
Germany4.96.36.97,67.06.86.5-2.9-6.90.33
Italy3.63.43.34.13.02.02.0-35.4-35.80.20
Japan9.09.111.011.211.313.212.117.67.90.29
Netherlands2.12.52.52.82.52.52.40.2-3.60.76
Sweden1.82.02.12.51.81.71.6-3.7-7.30.90
United Kingdom2.62.63.23.22.93.23.010.01.50.30
United States7.711.411,311.710.19.99.6-2.9-4.90.15
Ten major donors above340.746.649.653.350.251.449.22.3-2.2
Other DAC donors45.06.37.17.56.26.46.24.8-0.5
Total DAC345.753.056.760.956.457.855.42.5-1.80.29
(in percent of GNP)0.320.330.330.330.310.29
Source: OECD.

Box 13.Debt Relief and ODA

Donor countries include debt forgiveness as ODA by recording the disbursement of an official grant equivalent to the amount of principal and interest due on the loans forgiven (recorded in the year the payments were scheduled to be made). At the same time, principal payments on ODA loans forgiven are recorded as negative ODA in the year the payments were scheduled (interest received is not recorded as negative ODA). For example, if an outstanding ODA loan of $100 million is forgiven, on which principal was to be paid in equal installments over 10 years, then debt relief recorded as ODA would be $10 million annually over 10 years (plus interest forgiven). At the same time, $10 million would be recorded annually as principal payments to the donor (negative ODA) as if the loan continued to be serviced as scheduled.1

Debt forgiveness of ODA claims has been consistently recorded as part of ODA flows. However, the treatment by the DAC of debt forgiveness of non-ODA claims has varied in recent years. Up to and including 1989, where forgiveness of non-ODA debt met the tests of ODA (including that it be implemented for the purposes of promoting the development or welfare of the aid recipient), it was reportable as ODA. From 1990 to 1992, it remained reportable as ODA but was excluded from the DAC total. From 1993, forgiveness of debt originally intended for military purposes is excluded from ODA and is reportable as “other official flows.” Also from 1993, forgiveness of other non-ODA loans is recorded as ODA (where it meets the tests of ODA), as it was until 1989.

Debt reorganization2 is included as ODA if it is extended by the official sector, is implemented for the purposes of promoting the development or welfare of the recipient, and conveys a grant element of at least 25 percent (calculated at a discount rate of 10 percent).

In the case of refinancing, the gross disbursement is recorded as an ODA loan (or as other official flows if it does not meet the tests of ODA) while the original loan is struck from the record. Principal payments on the refinanced loan are recorded as negative ODA. In the case of rescheduling, the interest capitalization is recorded as an additional disbursement of ODA (or as other official flows if it does not meet the tests of ODA).

Debt forgiveness by DAC donors on ODA and non-ODA claims recorded as ODA was $2.7 billion in 1993. well below the peak of $6 billion in 1991 that included significant debt relief extended to Egypt and Poland. Debt forgiveness of non-ODA claims, included in individual donor ODA figures between 1990 and 1992 but excluded from the DAC total for ODA, amounted to $1.5 billion in 1990. $1.9 billion in 1991, and $1.9 billion in 1992—the bulk of this debt forgiveness was extended by the United States. Loans for debt reorganization recorded as ODA were $1.6 billion in 1993, well below the 1991 peak of $5.9 billion with the United States again providing the bulk of these loans.

1 The result of the debt forgiveness is thus a positive net ODA (equal to the interest forgiven); in the absence of forgiveness, and assuming the loan was being serviced, net ODA would have been negative (equal to the principal repaid).2 For the purposes of DAC statistics, debt reorganization includes rescheduling (maturity extension of loans where the ex post claim is held by a government or official agency) and refinancing (extension by a government or official agency of a new loan that replaces previous claims, irrespective of the sector of the original holder).

Among the low-income countries, donors are placing more emphasis on supporting countries with a demonstrable commitment to sound macroeconomic policies and market-based structural reforms, with an emphasis on sustainable private sector development, in an attempt to ensure more effective use of scarce resources. This stems from the almost universal recognition of the key role of private sector-led growth in creating jobs and reducing poverty on a sustained basis.

Several bilateral donors are also placing more emphasis on direct policies for poverty reduction within individual country programs. Increasingly, donors are moving from traditional development projects (such as infrastructure) to support for the social sector, recognizing the key role of investment in human capital for poverty reduction.53 This change in focus includes directing support to specific programs and projects targeted at the poor (e.g., programs targeted at women in rural areas) and supporting policies that have a wide impact on the poor (such as public expenditure on health and education).

Good Governance

With the end of the Cold War. many donors have focused increasingly on promoting a political and legal environment that is conducive to economic growth and widespread participation in the economic and political life of recipient countries. In aid decisions, greater account—in varying degrees across donors—is being taken of the recipient countries’ records on such issues as human rights, progress toward democracy, good governance, and participatory development. Several donors have established formal or informal criteria for assessing political and economic aspects of governance.

The implementation of donor policies has been nuanced. In cases where governance has been poor, but the recipient country authorities have shown a willingness to address the problems, donors generally have worked with countries to strengthen performance. Often donor assistance has taken the form of technical assistance, such as strengthening the legal framework and building democratic institutions. In other cases where governance is judged to be so poor as to preclude an effective relationship, some donors have scaled down their assistance. This course of action is often coordinated within the donor community in the context of local donor coordination, consultative groups, or regional cooperation such as in the context of the EU.

Table 14.Bilateral Net ODA Flows to Developing Countries by Country and Status of IMF Supported Program, 1987-93
Period Average
19871988198919901991199219931987-891990-93Change
(In millions of U.S. dollars)(In percent)
ESAF-eligible countries13,84316,14315,98919,66721,34420,81917,49715.32519.83229.4
Completed three annual ESAF arrangements 12,4872,9413,1763,6273,3943,6913,1522.8683,46620.8
Bangladesh9279319721,103812853669943859-8.9
Bolivia21323330836535650241925141063.3
Gambia, The515556575550505453-1.5
Ghana13123635226544933330923933941.4
Guyana15162736352624193058.6
Malawi17018118221620920816017819811.5
Mozambique5357325797527721,01081161683635.8
Senegal3593695375894214543634214578.4
Uganda8718816424428525534714628393.6
Completed one or two annual ESAF arrangements13,3163,9103,8494,5064,2884,1943,6193,6924,15112.5
Benin779314912616017114810715141.9
Burundi8883901581231491458714465.6
Guinea12016019213917323418115718215.8
Honduras2232562133842252071922302529.3
Kenya44461062 17356085204285585732.6
Lesotho63707485746974697610.0
Madagascar18121417526827421623119024730.0
Mali2222603013132802392202612630.7
Mauritania981141621061101161961251326.2
Nepal19022524923929027624622126318.8
Niger21524220025526426225221925518.0
Sri Lanka326436397404458249273386346-10.5
Tanzania7197866928447648166457337674.7
Togo861281081551251357910712314.8
Zimbabwe26523322829635953631024237555.1
Other IMF-supported programs of at least one year in 1990-9325,1886,1505,8668,15210,6659,6307,4445,7358,97356.5
Total of IMF-supported programs completed10,99113.00012,89216.28518.34617,51414,21512,29416,59034.9
No IMF-supported program in 1990-9332,8533,1433,0973,3822,9973,3053,2823,0823,2136.5
Non-ESAF-eligible countries8,8438,7439,20310,79813,00412,32211,7568,93011,97034.0
IMF-supported programs of at least one year in 1990-9342,1712,1422,2872,9993,5053,3382,6812,2003,13142.3
No IMF-supported program in 1990-9356.6736,6016.9177,7999.4998,9849.0756.7308,83931.3
Unallocated5,3295,8466.2376,7167,6557,9177,4435,8047,43328.1
China8631,2151,4971,5121,2532.0772,2451,1921,77248.7
Total628,87831,94732,92638,69343,25543,13538,94131,25041,00631.2
Memorandum items
Low-income rescheduling countries75,9887,1396,9808,7828,4949,6578,6396,7028,89332.7
ESAF-cligible countries
with no IMF-supported
program, including China3,7154,3574,5954,8944,2505,3825,5274,2084,98518.4
Source: OECD, Geographical Distribution of Financial Flows to Aid Recipients.

Box 14.ODA and Economic Adjustment

In recent years, there appears to have been a rea-sonably close relationship between ODA flows and the pursuit of economic adjustment programs. Within the group of low-income countries, in particular, bilateral ODA to countries pursuing IMF-supported adjustment programs grew more rapidly than to those countries without such programs (Table 14 on previous page). For example, the 41 ESAF-eligible countries with IMF arrangements completed between 1990 and 1993 experienced a 35 percent increase in bilateral net ODA on average from the period between 1987 and 1989 to that between 1990 and 1993 compared with an increase of 6½ percent for ESAF-eligible countries without IMF arrangements (an increase of 18 percent if China is included). Some countries pursuing IMF-supported programs recorded remarkable increases in net ODA flows-—for instance, Uganda completed three annual ESAF arrangements before the end of 1993 and received almost twice the level of ODA flows on average between 1990 and 1993 compared with the average for the period between 1987 and 1989. Low-income rescheduling countries recorded a 33 percent increase in bilateral net ODA flows over the same period, slightly more than the increase for all developing countries.

Within the group of non-ESAF-eligible developing countries, those countries that pursued IMF-supported adjustment programs of at least one year between 1990 and 1993 experienced a 42 percent increase in net ODA flows from the period between 1987 and 1989 to that between 1990 and 1993. This compares with an increase of 31 percent for non-ESAF-eligible developing countries that did not pursue an IMF-supported program for at least one year between 1990 and 1993.

Box 15Emergency Assistance

The rise in local conflicts and civil disorder in recent years has led to a sharp increase in emergency aid and peacekeeping operations by many donors, which, to a large extent, have been financed from aid budgets. Emergency assistance and distress relief from DAC donors exceeded 8 percent of total bilateral aid in 1993, compared with levels below 3 percent before 1990. In the wake of increasing budget constraints in donor countries, this has put pressure on other areas in aid budgets.

Following the recent needs for emergency aid in Haiti, Rwanda, Somalia, and the countries of the former Socialist Federal Republic of Yugoslavia, many donors are putting more emphasis on finding ways to prevent conflict and deal with countries in, or emerging from, conflict. There is a general view that emergency assistance will continue to place heavy demands on aid budgets, to the detriment of more development-oriented aid. Donors accept that emergency aid has to be incorporated more effectively into aid budgets, but the lessons and implications from recent experience remain to be fully evaluated.

For a summary of the instruments of financial support used by official creditors, see Official Financing for Developing Countries, World Economic and Financial Surveys (Washington: International Monetary Fund, April 1994), p. 35.

The OECD records flows in real terms by adjusting for inflation and changes in the exchange rate between the currency concerned and the U.S. dollar. The latest available series is based on 1993 prices and exchange rates.

The DAC is a specialized committee of the OECD that deals with foreign aid matters.

For a description of developments in export credits, see Section V.

Two measures of total net ODA are available. The first measure records the receipt of resources by developing countries, that is, the sum of the disbursements of concessional development finance by multilateral institutions and bilateral donors, as shown in Table 10 (and the memorandum items in Table 11). The second measure sums the disbursements by DAC countries directly to aid recipients (bilateral ODA) and DAC countries’ contributions to multilateral institutions, as presented in Table 11. The latter measure is the most commonly used for assessment of the aid performance of DAC members and analysis of trends, as it provides a measure of re sources available to multilateral institutions for future disbursements. The measures generally differ because of delays between contributions to multilateral institutions by bilateral donors and disbursements by multilateral institutions to aid recipients, and because developing countries receive resources from non-DAC donors (including intra-developing country flows; see Chart 7).

The dramatic fall in ODA from Italy was also driven by concerns about aid effectiveness.

Such expenses are recorded as ODA only in the first year upon the arrival of refugees, but not subsequently. Several European countries had an influx of refugees in 1992 and 1993, but less so in 1994, and this ODA component became less significant.

Calculated at a 10 percent discount rate, as described in Box 11.

Based on discussions by a small IMF staff team with staffs ofbilateral aid agencies in the following countries: Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States, in the period June 1994 to February 1995.

The DAC has established principles and orientations in several areas, in particular the Principles for Program Assistance; Principles for Effective Aid; Disciplines on Tied Aid Credits; Orientations on Participatory Development and Good Governance; and Orientations for Development Cooperation in Support of Private Sector Development.

For example, government support for NGOs was between 7 percent and 9 percent of total ODA in Canada, the Netherlands, and Sweden, and exceeded 18 percent of total ODA in Switzerland, in 1992/93.

The World Bank’s World Development Report 1991 discussed the role of investment in human capital in economic development.

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