The Composition and Distribution o£ Financial Assistance From Arab Countries and Arab Regional Institutions

This paper examines the volume and distribution of concessional and nonconcessional financial flows from Arab countries, and aid agencies, and regional institutions to developing countries. Arab financial assistance increased very rapidly from 1973 to 1980 in line with the rapid growth in oil revenues. Essentially because of the softer oil market, this trend was reversed in the 1980s. Nonetheless, the Arab contributions as a share of GNPs remain by far the most generous among the major donor groups. Arab recipient countries received nearly 62 percent of total Arab financial assistance. Together with large flows of workers’ remittances, this assistance accelerated their economic development beyond what would have been otherwise possible.

Abstract

This paper examines the volume and distribution of concessional and nonconcessional financial flows from Arab countries, and aid agencies, and regional institutions to developing countries. Arab financial assistance increased very rapidly from 1973 to 1980 in line with the rapid growth in oil revenues. Essentially because of the softer oil market, this trend was reversed in the 1980s. Nonetheless, the Arab contributions as a share of GNPs remain by far the most generous among the major donor groups. Arab recipient countries received nearly 62 percent of total Arab financial assistance. Together with large flows of workers’ remittances, this assistance accelerated their economic development beyond what would have been otherwise possible.

I. Introduction

This paper examines the volume and distribution of concessional and nonconcessional financial flows from Arab countries and their official agencies to developing countries, with a special emphasis on Arab recipient countries, from the time of the first oil price rise in 1973 to 1987. The introduction focuses on the major economic developments in the Arab world over that period. The second section analyzes the supply side of financial flows, namely the amount of bilateral and multilateral aid provided by Arab donor countries and their national agencies, both in absolute terms and in relation to their gross national products. The third part concentrates on the operations of and net disbursements by Arab/OPEC regional and multilateral development finance institutions. The fourth part presents the uses side of Arab assistance, namely the geographical distribution and sectoral orientation of the aid flows. The impact of this financial assistance and of receipts of private unrequited transfers on the economic aggregates of Arab aid recipients is examined in the final part of the paper.

This study encompasses all the members of the Arab League, classified into two groups: the Arab donor countries, which include Algeria, Iraq, Kuwait, the Libyan Arab Jamahiriya, Qatar, Saudi Arabia, and the United Arab Emirates, all of which are oil exporting countries and members of the Organization of Petroleum Exporting Countries (OPEC); and the Arab aid recipient countries, which are Bahrain, the Arab Republic of Egypt, Jordan, Lebanon, Mauritania, Morocco, Oman, Somalia, the Sudan, the Syrian Arab Republic, Tunisia, the Yemen Arab Republic, and the People’s Democratic Republic of Yemen 1/. Both Algeria and Iraq have also been recipients of Arab aid and are identified as such in the part dealing with the geographical distribution of aid among recipients. In that part, Arab aid recipient countries are subdivided into two groups: the Arab Middle East countries and the Arab African countries.

The economic developments in the Arab world during 1973-87 have intimately been affected by changes in oil production and price levels, in a direct manner for oil producing Arab countries, and indirectly through official assistance, employment opportunities, and workers’ remittances for most other Arab countries. The five years following the quadrupling of oil prices in 1973-74 were characterized by a massive increase in Arab donors’ growth rates, exports, current account surpluses, and total reserves. The substantially augmented national savings were used for a sharp increase in government expenditures, especially on services, and in investments, characterized by a wide range of impressive development projects.

Most of the Arab donor countries were also characterized by the small size of the indigenous population base and by a relatively minor percentage of the population participating in the economic activity. 2/ The burst in investments led to a tremendous increase in the demand for labor in these countries. As the internally available labor was not sufficient, neither in size nor in type and specialization, to fulfill this increased demand, it created the necessity to import the needed labor from abroad and, in particular, from the other Arab countries and from Asia.

The importance of petroleum in the economies of oil exporting Arab aid recipient countries 3/ differed from one country to the other, but was on average smaller than in the Arab donor countries. Nonetheless, oil exporting Arab aid recipient countries and, in particular, Bahrain and Oman, to a certain extent experienced the same economic development as Arab donor countries. The economies of most non-oil exporting Arab recipients were characterized by a relative scarcity of capital, important deficits in their trade and current account balances, and an abundant population. Their population thus started to provide the much needed labor to participate in the large development projects in the Arab donor countries. Arab labor represented on average about 70 percent of the total labor migration to Arab countries. Egypt, the Yemen Arab Republic, and Jordan were the main exporters of labor in the Arab countries, accounting for 70 percent to 80 percent of the total Arab labor movement. Next came the the People’s Democratic Republic of Yemen 4/, the Sudan, Somalia, and Tunisia—the latter especially to Libya. Morocco was also always an exporter of labor, but essentially to European countries. Three aid recipient countries were the exception to the rule: Oman was both an importer and an exporter of labor, while Bahrain and Mauritania were importers of labor.

Because of these twin factors of either oil revenue or increasing workers’ remittances, 5/ or both, GDP growth rates of Arab aid recipient countries were, on average, sustained throughout the second half of the 1970s, with consumption averaging 90 percent of total GDP, and even exceeding GDP in some of them. Also, Arab donor countries started channeling large amounts of development aid very early on in their development process to the neighboring Arab recipient countries. For many of the Arab aid recipient countries, foreign grants formed a large proportion of total governmental resources, thereby further widening the gap between expenditures and domestic resources. For the period 1975-78, the average ratio of foreign grants to internal resources was 49 percent for Jordan and 52 percent for the Yemen Arab Republic. Furthermore, over this period, a large number of these countries relied increasingly on foreign borrowing to finance their budget deficits. The share of foreign borrowing in total deficit financing averaged 45 percent in the P.D.R. of Yemen, 40 percent in Tunisia, and 57 percent in Morocco. 6/ Also, the recipient countries’ imports grew nearly twice as fast as their exports over the period 1973-78, resulting in an increasingly weakened balance of payments position.

Initially because of developments in the Islamic Republic of Iran and the consequent reduction in that country’s oil production, oil prices leaped to unprecedented levels in 1979-81. In the wake of the 1979-80 oil price rise and the onset of the recession in the industrial economies, the demand for oil began to decline sharply. Energy conservation and the greater use of alternative sources further reduced demand. World consumption of crude oil (outside the Eastern bloc) fell from 54.4 million barrels per day in 1979 to 48 million barrels a day in 1983, and then recovered gradually to 51.8 million barrels a day in 1987. 7/ Furthermore, because of significant increases in output by non-OPEC oil producers over the years and the inability of OPEC members to enforce a price/production strategy, OPEC’s share of world demand was drastically reduced. Falling consumption and sales put increasing pressure on oil prices, with average export prices of Arab donor countries falling from a high of US$33.5 per barrel in 1981 to a low of about US$13 per barrel in 1986. Only in 1987 was a small price recovery attained, with average export prices increasing to about US$17.

Although the 1979-81 surge in oil export earnings had an initial positive impact on growth rates of most Arab donors, the subsequent events forced an economic slowdown in Arab donor countries between 1982 and 1987. Combined exports of Arab donor countries fell continuously from 1980 to 1986, recovering only slightly in 1987. Because of the long implementation period for large capital intensive projects, imports continued to grow in donor countries between 1980 and 1982, while falling from 1983 through 1987, as countries started to defer large new projects.

As a result of these developments, the combined current position of Arab donor countries declined from a surplus of US$92 billion in 1980 to a deficit of US$15 billion in 1983. The further decline in the barrel price of oil in the mid-1980s was accompanied by a fall in the value of the U.S. dollar against the major currencies, thereby further deteriorating the Arab donors’ terms of trade. At the same time, interest rates on major currencies, and especially on U.S. dollar deposits, showed a declining trend. Consequently, the Arab donor countries’ current accounts remained continuously in deficit from 1983 onward. The deficits were financed initially by investment earnings, themselves sharply diminishing, with the result that the countries became dependent for finance on drawings from their accumulated reserves.

Total government revenues also decelerated sharply in Arab donor countries, resulting in significant cutbacks in government spending, including aid contributions. Furthermore, employment opportunities in the Arab countries showed a sharply diminishing trend. These combined factors had a negative influence on the economies of most Arab recipient countries.

II. Contributions by Arab Donor Countries and their National Agencies 8/

A. General review

1. Volume and composition

Arab donor countries contributed slightly more than US$100 billion 9/ to developing countries and multilateral aid agencies during the 1973-87 period (Table 1). Some Arab donors had provided financial aid to developing countries for some years prior to 1973, but the amounts were rather modest. Net disbursements were closely correlated with the economic developments in the Arab donor countries. In line with the major increase in oil prices in 1973/74, they increased from US$2.6 billion in 1973 to US$8 billion in 1975, paused at an average level of about US$7.5 billion annually in 1976-77, then rose again to their highest level of about US$11 billion in each of the years 1980 and 1981. In the wake of the deteriorating conditions in the oil market and decreasing accumulated reserves over the years, levels of financial assistance began to decline in 1982 and reached a low of US$2.5 billion in 1987.

Table 1:

Contribution of aid by Arab donor countries

(Net disbursements - in millions of U.S. Dollars)

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Source: OECD and staff calculations

About 80 percent of those contributions were extended on concessional terms and qualified as official development assistance (ODA). 10/ The remaining 20 percent were extended on nonconcessional terms. These ratios are, however, approximative as little information is available on nonconcessional flows, because donor countries do not publish these data. In particular, no breakdown by donor country could be obtained from 1979 on. The aggregate numbers on nonconcessional flows presented in this paper are essentially based on secondary sources and thus highly incomplete. Estimates of bilateral nonconcessional development flow nonetheless display a somewhat similar pattern to bilateral concessional flows, growing strongly from 1973 to 1976, receding from 1977 through 1979, jumping again from 1980 to 1982, and then falling to much lower levels since 1983, including negative flows in 1985 and 1987. Multilateral nonconcessional flows consist essentially of contributions to the various IMF facilities and repayments thereof.

Between 1973 and 1984, Arab donors were the second largest concessional donor group in the world behind the Development Assistance Committee (DAC) 11/ countries and ahead of the CMEA 12/ donors (Table 2). The share of Arab donors in total disbursed (ODA) increased from 17 percent in 1973 to an average of about 23.5 percent between 1974 and 1981, and then started falling gradually to a low of 6.5 percent in 1987.

Table 2:

Comparative performance of concessional aid donors in the world, 1973-1987

(ODA Net disbursements)

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Source: OECD and staff calculations.

Islamic Republic of Iran, Nigeria, and Venezuela

1973-79: Luxembourg and Spain. Since 1980, Greece, Iceland, Luxembourg, Portugal and Spain.

Bulgaria, CSSR, GDR, Hungary, Poland Romania, and USSR.

China, India, Israel, Korea (since 1980), and Yugoslavia.

As a share of GNP, however, the Arab donors remain the most generous among all donors. Arab aid accounted for an average of 4.72 percent of their combined GNPs between 1973 and 1978, and then started to decline slowly to a low of 1.24 percent of GNP in 1987, in view of both the reduced aid flows during the 1980s and the much larger nominal GNPs of the Arab donors (Table 3 and Chart 1). In comparison, ODA of DAC countries fluctuated between 0.30 percent and 0.38 percent of their GNPs between 1973 and 1987. The decision of Arab donors to use their enhanced financial resources very early on to help less fortunate developing countries was a distinctive phenomenon in the history of development aid.

Table 3.

Net Contribution of Official Development Assistance (ODA) as a Percentage of GNP, 1973-87

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SOURCES: O.E.C.D., AND STAFF CALCULATIONS.

SINCE 1981, GDP.

AUSTRALIA, AUSTRIA, BELGIUM, CANADA, DENMARK, FINLAND, FRANCE, F.R. OF GERMANY, IRELAND, ITALY, JAPAN, NETHERLANDS, NEW ZEALAND, NORWAY, SWEDEN, SWITZERLAND, UNITED KINGDOM, UNITED STATES OF AMERICA

Chart 1.
Chart 1.

Net Contribution of Official Development Assistance (ODA) as a Percentage of GNP, 1973-87

Citation: IMF Working Papers 1990, 067; 10.5089/9781451961447.001.A001

Sources: O.E.C.D. and staff calculations.1/ Since 1981, GDP.2/ Australia, Austria, Belgium, Canada, Denmark, Finland, France, F.R. of Germany, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Sweden, Switzerland, United Kingdom, United States of America.

Despite depending heavily on oil as a main source of income and not having developed a diversified industrial economy or an agricultural sector capable of reducing significantly their heavy dependence on imports of food, the Arab donor countries consistently achieved levels of aid far above the United Nations target for net disbursement of 0.7 percent of GNP.

The four oil-producing Arab states—Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates—provided on average more than 90 percent of net Arab aid. Saudi Arabia’s share alone grew from an average of about 52 percent of total net disbursements during 1973-79 to an average of nearly 70 percent in 1980-87. Kuwait has been the second largest donor over this period, followed by the United Arab Emirates. Aid from the other Arab donors (Algeria, the Libyan Arab Jamahiriya, and Iraq) experienced sharp fluctuations from one year to another between 1973 and 1981, but generally fell to much lower levels since 1982. In particular, Iraq’s net aid disbursement turned negative since 1983 on account of the war with the Islamic Republic of Iran.

Concessional aid flows by Arab donors display three main characteristics. First, with the exception of Algeria, Arab donor countries from the very beginning have extended the major part of their concessional development assistance bilaterally. The share of bilateral aid remained above 90 percent during 1973-81, except for the years 1976-78 due to important payments to the Gulf Organization for the Development of Egypt (GODE) which are categorized as multilateral contributions. With the decrease in absolute amounts of aid since 1982 and the desire of Arab donors to continue fulfilling their commitments to multilateral organizations, the share of bilateral concessional assistance fell to an average of 84 percent for the years 1982-87.

Second, a major part of Arab assistance has been in the form of grants. 13/ This reflects the philosophy permeating a large part of the Arab aid, namely of making both significant and unconditional contributions so that developing countries are able to set up policies for their economic and social development of their own free will outside of political and economic pressures. “The philosophy of assistance given by the Arab oil exporting countries to the third world springs from the basic Islamic philosophy of giving help and assistance based on soft conditions and without looking into economic returns. The basic philosophy of giving assistance is to help development in the recipient countries and to bring them together for a better cooperation and understanding among themselves.” 14/

Third, the majority of Arab aid was provided to Arab countries and the aid provided to them was to a large extent influenced by political developments in the Arab world. Between 1975 and 1979, about US$2 billion was granted to Egypt through GODE, but aid was halted when most Arab donor countries severed political relations with Egypt. A large amount of grants has been extended as general support assistance for Arab countries under resolutions adopted at Arab Summit Meetings. 15/ The Rabat Agreement, involving support to the Arab Republic of Egypt, Jordan and Syria, was undertaken by the oil exporting Arab countries at the Arab Summit Meeting in Rabat in 1974. The largest amount of general support assistance, in principle US$3.5 billion annually, was pledged at the Arab Summit Meeting in Baghdad in 1978 “to enhance the steadfastness” of the “Confrontation States.” Also, contributions to Iraq in the 1980s to help finance the conflict with the Islamic Republic of Iran have adversely affected other development aid flows.

2. National aid agencies

Iraq, Kuwait, Saudi Arabia, and the U.A.E. have established national aid agencies for the administration of their project assistance. Kuwait actually has two agencies: it set up the Kuwait Fund for Arab Economic Development as early as 1961, and the General Board for the South and Arabian Gulf in 1966. Abu Dhabi established the Abu Dhabi Fund for Arab Economic Development in 1971. The Iraqi Fund for External Development and the Saudi Fund for Development were set up in 1974. Though Libya does not possess an aid agency, project loans are usually channeled through the Libyan Arab Foreign Investment Company, which substitutes for the missing aid agency.

Although their role and importance differ significantly from one country to another, the national aid agencies are foremost concerned with project assistance. One exception is the Iraqi fund, which has also been entrusted with the administration of nonproject aid. The Iraqi Fund, however, has stopped providing assistance since 1982 in line with the general decline of aid provision by Iraq after the start of the war with the Islamic Republic of Iran. All of the national aid agencies have also been entrusted with the administration of project loans or project-related grants on behalf of their governments.

The Kuwait Fund is the most important because it extends all loans made by Kuwait to developing countries. Whereas the nonconcessional contribution by the Kuwait Fund is very small, its ratio of Kuwait’s total net disbursements of concessional assistance grew from a modest 2.6 percent in 1973 to an average of about 25 percent in the late 1970s and further to a peak of more than 50 percent in 1986, as the Kuwait Fund relied essentially on self-financing from its own resources, whereas direct aid by the Government of Kuwait fell to much lower levels. The Saudi Fund, which extends only concessional aid, has played a modest role in Saudi Arabia’s total concessional assistance, contributing between 2 percent and 7 percent of total. The assistance provided by the Abu Dhabi Fund consists of about two thirds of concessional aid, the remaining third being on nonconcessional terms; its concessional aid accounted for less than one tenth of the U.A.E.’s net ODA, except for the years 1982-84, during which it averaged about 15 percent of total. 16/ The main reasons for the less prominent role of the aid agencies in the latter two countries are as follows: 17/ (i) the high share of cash grants extended by Saudi Arabia and the U.A.E., which are disbursed by the Ministries of Finance over which the aid agencies have no influence; and (ii) in Saudi Arabia and the U.A.E. project assistance is not exclusively extended by the aid agencies, but also by the Ministries of Finance.

3. Coordination and cofinancing with other aid agencies

The rapid rise of the volume of Arab aid and the growing number of Arab aid agencies with limited staff resources in the mid-1970s induced Arab aid officials to coordinate their activities. 18/ The Coordination Group of Arab Aid Agencies was established in 1975, with the Arab Fund for Economic and Social Development (AFESD) assuming the functions of the Coordination Secretariat. It presently has ten members, six national agencies (the Abu Dhabi Fund, the Iraqi Fund, the Kuwait Fund, the Saudi Fund, the Libyan Arab Foreign Investment Company, and the Qatar Development Account), and four multinational institutions (AFESD, BADEA, the Islamic Development Bank, and the OPEC Fund). Meetings at the Director of Operations level are held twice a year and meetings at the Head of Agency level when the need arises. Between 1975 and 1987, twenty five meetings at the level of Director of Operations took place. Since 1978, the Secretariat also compiles and disseminates information on the commitments made by the member institutions. Some coordination of Arab aid agencies with other donors also takes place, although to a lesser extent. There are occasional coordination meetings with the DAC member countries, with the Commission of the European Economic Communities, with the agencies of the United Nations, and with other multinational aid agencies, including the IMF and the World Bank.

This coordination effort has entailed the harmonization of operational procedures, the exchange of information on new projects, a large number of cofinanced projects and joint appraisal and supervisory missions. Also loan agreements have been standardized for all Arab Funds. These procedures have enabled the Arab aid agencies to increase the volume of commitments, to broaden the geographic coverage of their activities, and to economize staff resources. 19/

A result of this cooperation is the high and growing share of cofinanced projects. “The increasing level of cofinancing is attributable to several factors. First, the rising cost of projects makes it imperative for the borrowers to explore the various sources of finance. This tendency also suits the donors for cost sharing and diffusing risk involved in financing infrastructure projects. Second, the sophisticated nature of modern projects also requires the active cooperation of financial and technical aid. Third, the introduction of a variety of instruments under the World Bank Pilot Scheme instituted in 1983 has enabled the large number of financial agencies to participate in project financing according to their suitability.” 20/ Although the funds committed to such projects vary by agency and by year, on average more than 50 percent of the national agencies’ annual commitments have been cofinanced with others in recent years. 21/ Cofinancings occur not only among Arab agencies but also with traditional bilateral and multilateral donors, in particular with the World Bank.

4. Multilateral contributions

Payment to regional and multilateral organizations by Arab donor countries constituted about 22 percent of total Arab contributions between 1973 and 1987, about half of which was extended on concessional terms (Table 1). In volume terms, the major donor of concessional multilateral assistance was Saudi Arabia, contributing 47 percent of the total, followed by Kuwait (26 percent), U.A.E. (8 percent), the Libyan Arab Jamahiriya (7 percent), Algeria (5 percent), and Iraq and Qatar (2 percent each). Among individual country programs, the highest share of multilateral contributions as a percentage of total concessional assistance was effected by Algeria (52 percent), followed by the Libyan Arab Jamahiriya (35 percent), Kuwait (22 percent), Qatar (20 percent), Iraq (17 percent), U.A.E. (12 percent), and Saudi Arabia (11 percent).

The largest beneficiaries of concessional multilateral contributions by Arab donors have been the Arab regional aid institutions, which indeed depend solely on contributions from Arab states. Between them they received 65 percent of total Arab concessional multilateral contributions between 1973 and 1987. The largest amounts have been paid to GODE (17 percent of total) because of the very large amounts disbursed between 1976 and 1978, AFESD (17 percent of total), the OPEC Fund (12 percent of total), and the Islamic Development Bank (9 percent of total). The remaining third of concessional multilateral assistance went to multilateral institutions with broad membership. The largest contributions, especially in the 1980s, went to IDA, followed by the different UN Agencies and Funds—of which the contributions to the International Food and Agricultural Development (IFAD) were very important—the World Bank, IFC, and the IMF Trust Fund and Subsidy Account. Among the regional development banks and funds, only the African Development Bank has received relatively substantial sums.

The bulk of the nonconcessional multilateral assistance by Arab donor countries consists of contributions to the IMF Oil Facility, Supplementary Financing Facility, and Enlarged Access Facility. In 1974 and 1975, the IMF arranged to borrow from the principal oil exporting countries and other countries with strong external positions to finance two special temporary lending facilities, the 1974 and 1975 oil facilities, which were completed in 1983. Kuwait, Saudi Arabia, and the U.A.E. contributed 10.4 percent, 32.3 percent, and 1.6 percent, respectively, of the total of these facilities. In 1977, the IMF made bilateral borrowing arrangements with 14 countries or their institutions to finance commitments under the Supplementary Financing Facility. This facility was established in 1979, and its funds were fully committed by March 1981. Kuwait, Saudi Arabia, and the U.A.E. again contributed to this facility, namely for 5.3 percent, 28 percent, and 1.5 percent, respectively, of the total. In March 1981, the first borrowing agreement under the policy on enlarged access to the Fund’s resources was reached with the Saudi Arabian Monetary Agency (SAMA). SAMA provided all of the funds for this facility up to the end of 1987, for a total of SDR 6.7 billion; in 1987, additional agreements under this facility with central banks, official agencies of a number of countries, and international agencies, came into force.

B. Bilateral aid flows

1. Algeria

Given its own development requirements, Algeria’s aid contribution has been modest among the seven Arab donor countries, totaling approximately US$1.1 billion over the period 1973-87 (Table 4). Between 1973 and 1978, concessional aid averaged slightly more than US$30 million per year, or 0.21 percent of GNP. In 1979, Algeria paid a large part of its US$250 million pledge for the Arab “Confrontation States,” bringing its concessional assistance to 0.81 percent of GNP. Since 1980, concessional aid averaged approximately US$76 million annually (but falling to US$25 million in 1987), equivalent to an average of 0.16 percent of GNP. Only very partial information is available on nonconcessional assistance, but the amounts involved are believed to be small. Except for its commitment under the Baghdad Agreement, most of Algeria’s bilateral aid has benefited African countries.

Table 4:

Contribution of aid by Algeria

(Net disbursements - in millions of U.S. Dollars)

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Source: OECD and staff calculations

Contributions to multilateral organizations have constituted the major part of Algeria’s concessional assistance in most of the years under review. About 40 percent of those contributions were extended to AFESD. The remainder is divided among the other Arab aid agencies (OPEC Fund, Islamic Development Bank and, to a lesser extent, BADEA), the UN Agencies and Funds (of which IFAD took the lion’s share), the World Bank/IFC, and the African Development Bank (AfDB). No contributions have been made to the IMF Trust Fund and Subsidy Account nor to IDA. In 1974, Algeria also established the Algerian Trust Fund (Arab Oil Fund) administered by the AfDB to provide finance for the economic development of the AfDB member states. It was initially endowed with US$20 million, of which US$14.3 million has been disbursed; the balance (US$5.6 million) was refunded to Algeria in August, 1975.

2. Iraq

Iraq contributed more than US$3 billion in aid between 1973 and 1982; the war with the Islamic Republic of Iran and reduced oil revenues, however, turned Iraq from a creditor to a net debtor country since then (Table 5). From a modest level in 1973, Iraqi aid leaped to US$414 million in 1974 (3.90 percent of GNP) and averaged US$215 million annually (1.30 percent of GNP) between 1975 and 1978. It rose significantly again to an annual average of US$760 million (2.21 percent of GNP) in 1979 and 1980 for the following two reasons: (i) Iraq pledged US$520 million for the “Confrontation States” at the Arab Summit Meeting in Baghdad in November 1978; (ii) wishing to compensate developing countries for the increase in oil prices, Iraq extended long-term, interest-free loans to twelve developing countries which had direct long-term contracts to purchase Iraqi oil. Ten such loan agreements were signed in 1980 for a total value of US$210 million, with the remaining two loan agreements (for US$8 million) being signed in 1981. Bilateral aid turned negative in 1983, while contributions to multilateral organizations fell to very modest levels since then.

Table 5:

Contribution of aid by Iraq

(Net disbursements - in millions of U.S. Dollars)

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Source: OECD and staff calculations

About 80 percent of Iraq’s assistance has been provided bilaterally, a high proportion of which consisted of loans for the financing of petroleum purchases or for the compensation of rises in oil prices. Except for the beneficiaries of aid under the Baghdad Agreement (especially Jordan and Syria), the geographic distribution of Iraqi aid remained diversified, with Asian and African countries receiving a comparatively large share. In particular, Iraq has been the largest Arab aid donor to India.

The oil compensation loans as well as many concessional project loans have been extended through the Iraqi Fund for External Development (Table 6). It was officially established as an independent institution in June 1974 with a capital of Iraqi dinars (ID) 50 million (US$169 million), which by end-1987 had grown to ID 350 million (US$1.1 billion), of which ID 217 million (US$0.7 billion) was paid in. Its goal is the promotion of economic and social development of Arab and other developing countries through concessional loans for projects, investments in joint projects involving Arab economic integration, technical assistance, and cooperation with other Arab international funds. Because of the conflict with the Islamic Republic of Iran, it virtually suspended its assistance program after 1982. By end-1987, cumulative loan commitments totaled about US$1.9 billion, to about 30 developing countries. Nearly half of the amounts committed were for infrastructural projects, the remainder benefiting agricultural, industrial and energy projects on top of the oil compensation loans. Net loan disbursements were much lower, totaling US$252 million up to end-1987. Furthermore, the Iraqi Fund took equity participations in Arab joint projects and Arab international funds for approximately US$200 million, of which US$85 million were disbursed.

Table 6:

Assistance by the Iraqi Fund for External Development, 1973-1987 1/

(In millions of U.S. dollars and percent)

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Sources: Joint Arab Report 1988, Arab Monetary Fund ed.; OPEC Aid and OPEC Aid Institutions, A profile ; OECD ; and staff calculations

Excludes loans and grants administered by the Fund on behalf of the Iraqi Government

Contributions to multilateral organizations made up approximately 15 percent of Iraq’s total financial assistance. Most of the concessional multilateral contributions were extended to Arab institutions, particularly to AFESD and BADEA, and to a lesser extent to the Arab Authority for Agricultural Investment and Development (AAAID), the OPEC Fund and the Islamic Development Bank. Among the multilateral organizations with broad membership, the UN Agencies and Funds (particularly IFAD) got the largest share, followed by the IMF Trust Fund and Subsidy Account and a small contribution to the World Bank/IFC. Iraq does not contribute to IDA, nor to the African Development Bank or to any regional development bank.

3. Kuwait

Kuwait was the second largest Arab aid donor (after Saudi Arabia) in the period under review, having contributed a total of approximately US$16 billion between 1973 and 1987 (Table 7). It is also the pioneer of the Arab aid effort, with an assistance program dating back to the beginning of the 1960s and one of the most generous donors in the world in terms of GNP. A large part of Kuwait’s concessional aid being extended to Arab countries, the volume of aid has fluctuated according to decisions taken at Arab Summit Meetings and other developments in the Arab World. A major part of the disbursements between 1975 and 1977 benefited Egypt, Jordan, and the Syrian Arab Republic, following the decision taken at the Arab Summit Meeting in Rabat in October 1974, and in the years 1979-81 consisted of US$487 million per annum to the “Confrontation States” under the Baghdad Agreement. Only in the last three years under review, in the wake of a softer oil market, has Kuwait’s aid fallen below the US$1 billion per year mark. Though the information is incomplete, nonconcessional assistance seems to have accounted for about one fifth of Kuwait’s total financial contributions between 1973 and 1987 and notably in 1976 stood above the level of concessional aid.

Table 7:

Contribution of aid by Kuwait

(Net disbursements - in millions of U.S. Dollars)

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Source: OECD and staff calculations

Kuwait provides aid contributions through various channels. The three main ones are the Ministry of Finance, the Kuwait Fund for Arab Economic Development and the General Board for the South and Arabian Gulf. Smaller amounts are extended by various ministries, including Education, Religious Affairs and Commerce, but the data are not available. 22/ Most of the latter aid is believed to be in the form of scholarships and training grants.

The principal aid contributor is the Ministry of Finance, which extends both grants and nonconcessional loans. The bulk of the grants consisted of general support assistance, essentially for Arab countries. Smaller amounts were devoted for educational, health and other projects as well as for relief assistance after natural calamities or civil wars. Most nonconcessional loans were in bilateral form, benefiting foremost Arab countries. Nonconcessional multilateral contributions are believed to have totaled US$573 million net of repayments between 1973 and 1987, the bulk of which was extended to the IMF oil and supplementary financing facilities.

The main organ for the provision of Kuwait’s project assistance to Arab and other developing countries is the Kuwait Fund for Arab Economic Development (KF). It was set up in 1961 as an autonomous public agency endowed with an initial capital of KD 50 million (US$140 million) which was progressively increased to KD 2 billion (US$7.2 billion) in February 1981. 23/ Its main purpose is to assist Arab and other developing countries in developing their economies by providing loans on concessional terms for specific projects which are likely to have a favorable impact on the borrower’s economic development while yielding a satisfactory rate of economic return. Until 1981, the KF’s activities were limited to loans and relatively small technical assistance grants. The new statutes adopted in 1981 also enabled the KF to participate in the capital stock of development-oriented corporations controlled by developing countries and of international and foreign development institutions assisting developing countries.

Total commitments of the KF between 1973 and 1987 amounted to nearly US$5.8 billion, most of which was on concessional terms and with about 90 percent extended bilaterally (Table 8). Compared with previous periods, an acceleration of lending activities occurred from 1975 on following a five fold increase in the KF’s capital and a broadening of the KF’s geographic coverage to also include non-Arab developing countries. The peak level of commitments occurred in 1981-82 after a further doubling of the KF’s capital and the adoption of the new statutes. In Line with the general decrease in Kuwait’s assistance in the wake of the softer oil market, the KF’s level of commitments fell to about US$300 million per year since 1984. Disbursements by the KF have displayed a relatively regular trend, growing from a small amount in 1973 to a little more than US$200 million annually in 1976-79, and further to an average of US$325 million per year between 1980 and 1986. Only in 1987 did disbursements fall to US$88 million.