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 Global Development Finance (formerly 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 in that it covers only disbursements, not guarantees. The coverage of military debt is not comprehensive.

The World Bank definition of developing countries includes all low- and middle-income countries (except economies with a population of less than 30, 000), including countries in transition. The 1997 Global Development Finance included 136 developing countries that reported data to the World Bank.

OECD Development Assistance Committee (DAC) data—published in the Geographical Distribution of Financial Flows to Aid Recipients 1991/1995 (Organization for Economic Cooperation and Development, 1997b) are derived from creditor sources. The data are, however, available only with a considerable lag: as of July 1997, estimates for aggregate net disbursements were available for 1996, while the comprehensive individual country data were available only for 1995.

The OECD defines official development assistance (ODA) as grants or loans to developing countries in Pan I 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 debt-service payments to be made over the lifetime of the loan, expressed as a percentage 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 (Kuhn, Horvath, and Jarvis, 1995, Appendix III). Other official development financing (ODF) comprises flows for development purposes that have too low a grant element to qualify as ODA. The definition of other official development financing excludes officially supported export credits, because export credits are regarded as primarily trade promoting rather than development oriented. EMF financing from the General Resources Account is excluded, while financing from the Trust Fund, Structural Adjustment Facility (SAF), and Enhanced Structural Adjustment Facility (ESAF) is included. ODF is the sum of ODA and other forms of official development financing.

The OECD definition of developing countries includes those countries in Part I of the DAC list of aid recipients (see Table A1). This includes more than a dozen countries that the World Bank considers high-income countries, including Bermuda and Israel, as well as some low-and middle-income countries with populations of less than 30, 000. The OECD classification of developing countries excludes, but the World Bank includes, most of the countries in transition in Eastern Europe (Bulgaria, Czech Republic, Hungary, Poland, Romania, and Slovak Republic) and the Baltic countries, Russia, and some other countries of the former Soviet Union (Belarus, Moldova, and Ukraine). These countries are in Part If of the DAC list of aid recipients.

The differences in coverage and definition make World Bank and OECD data difficult to reconcile without detailed knowledge of the respective databases. For example, the OECD recorded net ODF from multilateral institutions to developing countries as $26 billion in 1996 (Table 1), while the World Bank recorded significantly lower net disbursements from multilateral institutions to all countries, at $15 billion in 1996. 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 European Union 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 the Bank for International Settlements (BIS) together, and the Berne Union, each with different concepts and coverage.

Section II relies primarily on OECD-DAC data.

Guiding Principles of Aid Disbursement Policies

The lessons of past development cooperation show that, properly applied in propitious environments, development assistance has been able to achieve a significant improvement in the quality of life of a large number of people in many developing countries. However, at the same time, the experience shows that development assistance is essentially a complementary factor, albeit a critical one: civil conflict and poor governance, despite aid, can set back development for generations. Based on the above experience and the need to meet new challenges posed by the increased complexity of relationships between the industrial and the developing countries and changing circumstances within the developing countries themselves, DAC member countries in 1995 adopted the policy statement “Development Partnership in the New Global Context” and subsequently outlined in their 1996 report, Shaping the 21st Century, a shared approach to development cooperation and have pledged to modify and strengthen their aid disbursement policies accordingly.

This strategy includes, for the first time, quantitative targets as well as key qualitative factors. The quantitative targets for poverty reduction, social development, and environmental sustainability are drawn from those already endorsed in other international forums.¹ They reflect broad agreement in the international community on measures of progress and have been arrived at with the active participation of developing countries.

1. Economic well-being. The proportion of people living in extreme poverty in developing countries should be reduced by at least one-half by 2015.

2. Social development. There should be substantial progress in primary education, gender equality, basic health care, and family planning, as follows:

• universal primary education in all countries by 2015;

• demonstrated progress toward gender equality and the empowerment of women by eliminating gender disparity in primary and secondary education by 2005;

• a two-thirds reduction in the mortality rates for infants and children under age 5 and a three-fourths reduction in maternal mortality, all by 2015; and

• access through primary health care system to reproductive health services for all individuals of appropriate ages as soon as possible and no later than 2015.

3. Environmental sustainability and regeneration. Implementation of national strategies for sustainable development in all countries by 2005, so as to ensure that current trends in the loss of environmental resources are effectively reversed at both global and national levels by 2015.

The 21st Century strategy also stresses that aid programs should focus on several key qualitative factors, reflecting an increasing awareness that attainment of the above measurable goals will depend on more stable, safe, participatory, and just societies. This requires the development of capacity for effective, democratic, and accountable governance; the protection of human rights; and respect for the rule of law. Thus, successful development strategies must integrate a number of key elements:

• a sound policy framework encouraging a stable, growing economy with full scope for a vigorous private sector and an adequate fiscal base;

• investment in social development, especially education, primary health care, and population activities;

• enhanced participation of all people, notably women, in economic and political life and the reduction of social inequalities;

• good governance and public management, democratic accountability, the protection of human rights, and the rule of law;

• sustainable environmental practices; and

• efforts to address root causes of potential conflict, limit military expenditure, and target reconstruction and peace-building efforts toward longer-term reconciliation and development.