Why we should target country-programmable aid instead of ODA

Countries’ contributions to international development has been judged by the percent of their GNI given as aid (measured by official development assistance, or ODA). In 1970, it was agreed that “economically advanced” countries should commit to spending 0.7% of their GNI on ODA, and this has been a rallying call for civil society organisations (CSOs) ever since. But events in 2022 highlight a potential pitfall to a single-minded focus on this ratio: some components of ODA are highly volatile. Sticking rigidly to the target means that when there is exceptional humanitarian need, other worthwhile programmes are subject to unnecessary funding swings. Today, we published a factsheet that suggests that this is what several major donors are doing: those with a strong commitment to a fixed target are making sharp cuts in 2022 to accommodate unanticipated spending on Ukraine under those targets.

Rigid targets for demand-driven, unpredictable spending make little sense.

This blog calls for a greater focus on ‘country-programmable aid’, a narrower measure of aid that excludes variable items such as humanitarian flows and in-donor refugee costs, not because they are unimportant but because they are difficult to budget for in advance. This would be a more appropriate measure for the formal commitments to spend on aid such as those in place in the UK or Denmark, and could prevent unforeseen crises such as the Ukraine invasion being treated as an excuse to cut aid elsewhere.

The dark side of targets?

The countries that have been most explicit (if not unapologetic) about diverting aid are also those with the clearest commitment to hitting a particular ODA/GNI target. The UK government has a legal obligation to meet 0.7%, or explain why it hasn’t to parliament with reference to the economic or fiscal situation (allowing it to hit 0.5% instead since 2021). Denmark also has a formal commitment to meet 0.7%, and a special budget balancing mechanism that ensures it does not go too far over 0.7%. Sweden has no legal commitment but has been strongly politically committed to meeting 1% of GNI since 2006. Each have announced huge cuts to accommodate the costs of hosting Ukrainian refugees.

By contrast, the country for which the funding for Ukraine seems most likely to be additional is the US, which has historically distanced itself from any ODA/GNI target. Spending as of July 2022 was 40% higher than the same time last year, even when excluding Ukraine.

As data is only available for certain countries so far in 2022, caution should be used in assessing trends. But it is notable that, of the countries discussed, the US is the odd one out in both regards.

This is not to argue that targets are bad: if the US had spent 0.7% of its GNI on ODA for the last few decades, this would have made the world a better place even if it had also slashed budgets for non-Ukraine crises this year. But if targets are treated as ceilings, this suggests we should think carefully about what they include.

Would a narrower measure of ODA make more sense for rigid targets?

ODA comprises some stable elements that require predictable, multi-year funding, and some erratic elements that entail large swings. If donors commit to including both under a relatively inflexible budget target (i.e. 0.7%) then in years with large refugee flows, or when large amounts of humanitarian funding are needed, other programmes will lose out.

The way the UK allocates resources to government departments provides a useful analogy. The Treasury budgets for two types of spending: ‘departmental expenditure limits’ and ‘annually managed expenditure’. The former is for expenditures that can be predicted reasonably well and which therefore receive multi-year budgets, such as public administration and school budgets. The latter is for expenditures that are harder to predict and therefore for which setting multi-year budgets doesn’t make as much sense, such as benefits or debt interest.

The relevance for ODA is clear: budgeting to spend a certain amount on refugee costs without knowing how many refugees there will be makes no sense. But not doing so means cutting other programmes at short notice. Instead, if donors are to set input targets (an approach which has both pros and cons) then these should focus on only the more predictable elements of spending.

Since 2011 the Organisation for Economic Co-operation and Development (OECD) Development Assistance Committee has produced such a measure which does exactly that: ‘country-programmable aid’. As the name suggests, it focuses on aid that is ‘programmable’ ( aid that is subject to multi-year planning at a country or regional level) , and so by its nature excludes volatile spending items such as humanitarian aid and in-donor refugee costs. While CSOs have long pushed for additional ODA spend, relatively little attention has been paid to country-programmable aid, despite widespread concerns about how ODA is measured. If donors are to set fixed targets they should be for country-programmable aid, not ODA. While this is unlikely in the near future, increased attention from CSOs on this measure could nevertheless be useful.

The other option would of course be to view the target as originally intended: as a ceiling, not a floor. Commentators in the UK frequently point out that the legislation requires the UK to spend at least 0.7% of GNI on ODA: the decision to spend not a penny more is political. However, as Denmark’s budgetary mechanism shows, it is not a decision unique to the UK. If the reality is that having set input targets, it is politically difficult to go above them even if the situation calls for it, then mixing up volatile and stable elements under the target is unhelpful in years of unprecedented need. Increased focus on country-programmable aid would be a better alternative.