Why multilateral?

Multilateral ODA comprises two components: official concessional contributions to multinational organisations, labelled as core funding; and non-core funding, which is bilateral aid earmarked by its providers for specific development initiatives channelled through – and implemented by – multilateral agencies. One of the most notable trends in the past 20 years (Figure 2) has been the steady growth in multilateral ODA, which has risen in the past decade from US$ 27 billion to US$ 38 billion, accounting for close to one-third of gross ODA. In 2010, an additional 12 per cent of total ODA – thought to have been recorded as bilateral – was, in fact, earmarked aid channelled through multilateral agencies, with total multilateral ODA representing almost 40 per cent of gross ODA in 2010 (OECD DCD/DAC, 2012e, p. 15; OECD DCD/DAC, 2011j; OECD DCD/DAC 2010a; OECD DCD/DAC 2008e).

The United Nations receives the lion’s share of non-core multilateral ODA, which represented 74 per cent of its total funding for development (including humanitarian) activities. The second-largest recipient of non-core funding is the World Bank Group, with the EU being a distant third, in view of the fact that it started only recently to accept earmarked funds from its member states.

 Does multilateral ODA present a better alternative to bilateral aid?

 Has it been used more or less to the same extent by ODA providers?

 If there are a range of differences regarding its use, what reasons might explain this?

 What are the future prospects for multilateral ODA?

These questions are among the many that DAC reports have addressed while pointing out the pros and cons of using multilateral organisations to channel part of the ODA.

Essentially, the choice of whether to go multilateral boils down to a trade-off between greater efficiency by pooling resources into a multilateral venue (or a “principal agent model”, i.e. an agent acting on behalf of participating bilaterals) and maintaining national scrutiny over funding usage through bilateral channels. The main pros of going multilateral include achieving economies of scale; taking advantage of multilateral organisations’ knowledge and other resources; lowering unit costs; gaining greater flexibility of movement, thereby facilitating a faster response to needs; benefiting from perceived political neutrality and legitimacy; and supplementing limited aid-delivery capacities of some bilaterals. In addition, there is evidence that multilateral aid is less geographically fragmented and delivers a higher proportion of programmable aid.

The cons refer to multilateral agencies’ institutional complexity, adopting time-consuming procedures, and lacking in transparency and accountability. Going through multilaterals reduces the visibility of the bilateral aid provider – a politically important issue. Some have also argued that the effectiveness of multilaterals should not be taken for granted. Several bilaterals carry out – or are planning to – their own evaluations of the effectiveness of multilaterals as an option. DAC members that are members of the Multilateral Organisation Performance Assessment Network are reported as using the Network’s common approach in making their own assessments to decide on future multilateral allocations.

The tensions between those presenting arguments in favour of and against the use of multilaterals serve to explain the considerable variations among ODA providers. This also explains why some providers (Portugal, Korea, Spain, the German Federal Ministry for Economic Cooperation and Development (BMZ), among others) have placed limits on channelling their ODA contributions through multilaterals (OECD DCD/DAC, 2012e).

The usage range varied from 27 per cent for the United States to 78 per cent for Italy, with other countries falling somewhere in between (Austria 65 per cent, Canada and France 46 per cent, Switzerland 37 per cent, New Zealand 34 per cent, Japan 25 per cent). For non-DAC countries, members reported that 66 per cent of ODA went to multilaterals in 2009, mostly to the European Development Fund and the EU budget development programme.

Although there are more than 200 multilaterals, ODA providers have concentrated on using five main clusters. The DAC channelled 81 per cent of its multilateral ODA into these clusters, which consist of the European Development Fund–plus–EU budget, the World Bank IDA, UN funds and programmes, the AfDB, the Asian Development Bank (ADB), and the Global Fund to Fight AIDS. The remaining multilaterals account for less than 20 per cent of DAC multilaterally-earmarked flows, according to the 2009 figures.

The DAC 2011 report listed “Good Practice Lessons on Good Multilateral Donorship”, which suggested periodically reviewing the balance between multilateral and bilateral programmes, assessing multilateral performance, publicising the indicators and ratings affecting the choice of multilateral allocations, etc. These are important lessons from the ODA providers’

perspective. But is this enough? The same report rightly says that multilateral ODA and organisations must pay attention to recipient countries’ interests and concerns about conditionalities as well as to delays in responding to recipient countries’ requests. They must also refrain from adopting policies deemed counterproductive and avoid any reluctance in partnering with other agencies to conduct assessments or joint missions, etc. Such practices have given rise to considerable transaction costs.

Overall, multilateral ODA can play an important complementary role to bilateral ODA, but both could use more actions to improve development assistance impacts. The proliferation of multilaterals has inevitably caused more aid fragmentation – an issue that has become more serious for developing countries, which have suffered as a result, and it has yet to be resolved effectively.

In terms of future prospects, the 2012–2015 Survey on Donors’ Forward Spending Plans reported that, of the sixteen that responded, nine planned to increase their multilateral ODA in real terms by 2013, whereas seven predicted a decrease in their multilateral spending, indicating an emerging downward trend, as compared to previous patterns of increased growth in multilateral aid. “These projections may indicate the beginning of a drying-up of the traditional source of multilateral funding” (OECD DCD/DAC, 2012e, p. 19).