Scaling up aid: an elusive quest – from Pearson to Gleneagles to SDRs

Like Captain Ahab’s quest for the great white whale, scaling up ODA to achieve the 0.7 per cent ODA/GNI UN target continues to haunt the DAC, even as it looks to create the conditions for an exit from aid and fashions aid exit strategies, known as “transition finance”.¹⁷ But even so, the political rhetoric and international commitments keep up the pressure for making the target, and real financial emergencies such as the COVID crisis are undeniable. (For a current review of the issues and literature see (Prizzon & Pudussary, 2021) The EU aims for all its members to reach the 0.7 per cent target by 2030. And the UK, which has recently walked back from its attainment of the 0.7 per cent target, still leaves open the possibility of getting back there. The new US Administration has announced that development assistance will have a prominent role in its national security and foreign policy strategy. In the context of climate change negotiations, the $100 billion “additional aid” pledged at the 2009 Copenhagen Climate Change Conference is still a promise, repeated at the 2021 G7 Summit. But it is still a mirage, even if the actual amount of ODA allocated to climate change is tracked by the DAC and growing. A separate accounting system with its own fund outside ODA remains in demand, with climate change regarded as a global public good and therefore not to be defined as ODA, and to be clearly additional to it.

On that theme also is the proposal for a new Global Public Investment Pledge, moving the world from the era of aid for country-based development programmes to an era of investing in global public goods, thus from an ODA-based paradigm to a global public investment paradigm, with new institutional fora (Glennie, 2021). For an earlier attempt at a design for a global public goods-based world finance system, see Kaul, Conceicao, Le Goulven & Mendoza, 2003. The public support for “problem-based”

development finance is also likely to become stronger than for “country-based” aid, as we see in the multiplication of special funds, although COVID-19 brings country needs back into focus. The country-level coordination challenge as set out in paragraph 9 of the AAAA and the 2018 G20 Eminent Persons Report remains, however; the issue is whether SDG “mission-based” programming can make this coordination challenge more solvable.

17 The DAC has a “transition finance” work programme and has undertaken a number of country studies.

There have been a number of cases in recent times where individual DAC members have scaled up their ODA significantly. The UK under DFID was such a case (OECD, 2020a). And Germany reached the 0.7 per cent target in 2020 (OECD, 2021). France has committed to it (again), allocating significant new funding. Further back, at the beginning of the 2000s the US George W. Bush Administration launched two dramatic initiatives; first, the President’s Emergency Plan for Aids Relief (PEPFAR), to address the critically urgent problem of AIDS, with a $15 billion financial commitment.

This programme grew from nothing to $6 billion annually in a very short period of time, with a major impact, though conducted quite outside local budgets and health sector programming;¹⁸ and second, the Millennium Challenge Corporation (MCC) which was to disburse some $5 billion per year to countries selected on the basis of a good governance checklist. The MCC reached a disbursement rate of just $1 billion and has stayed at that level, though the Joe Biden Administration plans to revive the earlier scale ambition. For a close-up view of how these initiatives were prosecuted, see (Lancaster, 2008).

Further back, Japan launched a spectacular set of five-year aid programmes in 1981, 1985 and 1988, first to double the amount of its aid volume and then to reach the DAC average level in terms of net ODA/GNI by 1992.

And indeed, Japanese aid volume did expand dramatically. Japan became the world’s top aid donor by volume in 1989, surpassing the US (Kato, Page, & Shimomura, 2016). And this at a time when fears were rife of a Japan that would become the world’s most powerful economy and that an economic cold war was underway between the US and Japan. But the crash of the Japanese property markets in 1992 and all that followed brought that episode to an end.

Looking back at ODA history (not counting the current EU effort) there have been just two concerted attempts to scale up aid, the first being the 1969 Pearson Commission proposal that the 0.7 percent target be met by 1975 and by 1980 at the latest (see Box 2). The second being the G8 commitments taken at Gleneagles in 2005, in which the DAC played a not insignificant behind the scenes role in the Gleneagles arithmetic.

The Pearson Commission scenario was destroyed in short order, first by the unsustainability of the US balance of payments and the 1971 “Nixon shock”

18 It was eventually brought into more integrated health sector programmes under the Obama Administration.

decision to end the link of the dollar to the price of gold at $35 per ounce.

Then, secondly, came the oil price shock of 1973 and those that followed, and then the dramatic expansion of the “recycling” of the oil surpluses via the international banking system, which seemed for some time to be the main way development would be financed in the future, with rising commodity prices (“commodity power”). That too ended in tears in the debt crises of the 1980s.

There is, as indicated above, a great “what if” question here, that could justify a doctoral thesis. How would the Pearson scenario have been managed and realised, and supposing that a successful general agreement to untie aid had been reached at the 1970 DAC HLM in Tokyo? Given that intensive work had been done on this question, the answer might throw light on a quest that has not gone away, of how a coherent international effort to scale up development finance on an untied basis could work.¹⁹

The second scaling up scenario emerged from the Gleneagles Summit of 2005, held in the context of a buoyant global economy (the gathering risks were not yet perceived). UK Prime Minister Tony Blair had appointed a Commission for Africa which delivered a major report for the Gleneagles Summit. The outcome was a spectacular set of G7 commitments to increasing aid, with a theme of doubling aid to Africa from under $25 billion in 2004 to $50 billion by 2010 (G8 Gleneagles, 2005). It also established a mutual accountability process operating via the already established APF, comprised of personal representatives of G8 heads of state and NEPAD steering group members. This mutual accountability process fell to the DAC Secretariat working with UNECA.

The idea that ODA to Africa could be doubled from 2004 to 2010 was part of a broader projection which would have seen total ODA rise from nearly

$80 billion in 2004 to nearly $130 billion in 2010, based on commitments before and at Gleneagles. The Gleneagles Africa statement cited OECD data as follows:

19 Compare such a scenario with the new OECD/UNDP Impact Standards (OECD/UNDP, 2021), where the assumption is that there is a multiplicity of different kinds of actors in the development system who cannot be coordinated, only guided to place their efforts into the SDG framework, with (voluntary) disciplines (G8 Gleneagles, 2005) applied via meeting agreed impact standards: an approach geared to the realities of the 21st Century and the existence of the universal SDGs.

Paragraph 27: The commitments of the G8 and other donors will lead to an increase in official development assistance to Africa of $25 billion a year by 2010, more than doubling aid to Africa compared to 2004.

Paragraph 28: As we confront the development challenges in Africa, we recognise there is a global development challenge facing the world as a whole. On the basis of donor commitments and other relevant factors, the OECD estimates that official development assistance from the G8 and other donors to all developing countries will now increase by around $50 billion a year by 2010, compared to 2004 (G8 Gleneagles, 2005).

The background story here is that the DAC Secretariat had undertaken a mathematical exercise on what it would take to double aid, a popular proposal after the Millennium Summit of 2000. In the 2001 DAC chair’s report (OECD, 2002), a “ready reckoner” table was published, showing that, with annual increases of 2.5 per cent in GNI and 0.01per cent in DAC members’

ODA/GNI ratios, aid would double between 2000 and 2012. Commitments made at the 2002 Monterrey Financing for Development Conference made such a scenario increasingly plausible, and the 2004 chair’s report started publishing annual simulations of ODA prospects, first for 2006, and later for 2010, showing that doubling was possible by the latter date, compared with 2000. On the morning of the final day of the G7 Summit in July 2005, the then chair of the DAC, Richard Manning, received a call from a UK official at Gleneagles requesting clearance for the Africa outcome document to refer to the OECD analysis. The result is to be seen in the above paragraphs.

In the event, ODA to Africa did not double from 2004 to 2010; it rose by 46 per cent in real terms, i.e., by $12 billion rather than $25 billion at 2004 prices. And globally, aid did not double from its 2000 level until 2020, although most of that increase, 69 per cent, happened in the first decade 2000-2010 (OECD-DAC, 2021a). This meant that the DAC Secretariat’s 2001 simulation had not been entirely wrong in estimating the momentum of aid in that first period: its 85 per cent predicted real-terms increase was a little high, but since the Global Financial Crisis reduced GNI growth after 2008, its projection of a 0.32 per cent ODA/GNI level was very close to the final 2010 ratio of 0.31 per cent. This was a remarkable result considering that the 2001 projection was for a sharp reversal of what had been a 40-year decline.

The Gleneagles targets gave rise to some still relevant thinking on what would be necessary to change in the aid process in order to make such a scaling-up work. Johannes Linn, formerly a vice president at the World

Bank, has been prominent in looking into the critical behavioural changes that would be needed. This critique, expressed initially in a Brookings policy brief (Hartmann & Linn, 2008), centred on the fact that donor agencies did not have scaling up as any kind of basic priority. Hartmann and Linn’s main recommendation was that scaling up be added to the five principles of the Paris Declaration, with a regret that the chance to do so at the Accra HLF of 2008 had been missed. Scaling up would require creating fiscal and financial space, political space, cultural space, institutional space, partnership space and learning space. A change of mindset and practices was needed. The Policy Brief referred approvingly to the motto of Sadako Ogata, first President of the newly consolidated Japan International Cooperation Agency (JICA): “speed up, scale up and spread out”.

Donors could take eight immediate steps to do so, beginning with adding scaling up to the Paris Declaration, but the second step would be that “each agency should implement a scaling up audit with independent outside input.

This audit would assess how far the agency focusses on scaling up and what changes are needed to induce more systematic and effective scaling up efforts” (Hartmann & Linn, 2008).

Earlier, in November 1995, an attempt to obtain a DAC agreement to adopt 10-year development contracts as the standard aid modality, using budget aid, had been tabled in a room document at an SLM by Jean-Michel Severino, then head of the French Ministry of Cooperation. It was prefaced with a devastating critique of short-term project-based aid in weak African states.²⁰ This initiative did not gain traction at that point. But in 1998, on the personal initiative of DFID Minister Clare Short, the UK provided a 10-year aid contract to Rwanda and expanded use of this modality elsewhere (Short, 2004).²¹

In 2006, at the Financing for Development Conference in Abuja on “From Commitment to Action in Africa”, an initiative from Nigeria’s then Minister of Finance Ngozi Okonjo-Iweala saw the submission of a paper by Nigeria, the AfDB and UNECA of a paper asking how the IMF/World Bank Poverty

20 In 1994, the World Bank business model had been rocked by the revelations in the Wapenhans Report of severe distortions in staff incentives, which rewarded project approvals at the expense of project management and satisfactory project completions (World Bank, 1994).

21 Twenty-five years later, Phil Clark offers a relevant current assessment of the politics and development progress in Rwanda (Clark, 2021).

Reduction Strategy Papers could be used to scale up aid, arguing that donors needed to deliver long-term predictable aid in support of country-led plans (Nigeria/AfDB/UNECA, 2006).

There is little doubt that the scaling-up challenge remains perhaps the greatest gap in the whole DAC oeuvre. It lies behind the long road towards the 0.7 per cent target taken as a commitment device, explaining very largely the gap between promise and performance, with performance lagging decades behind commitments. It also goes far to explaining the fundamental failure of the aid industry to build systemic capacities in developing countries, given the fragmentation and the project-based nature of the hypercollective effort so vividly set out by Severino and Ray in 2008.

The capacity of China (using development financing modalities largely learned from Japan) (Brautigam, 2009; Kato et al., 2016; Xu & Carey, 2015b) to follow the three Ogata precepts is a lesson here, that is just now beginning to be heard as the G7 turns to considering the possible programmatic responses to the Chinese Belt and Road Initiative in the field of infrastructure (G7, 2021). Underlying conceptual and capacity gaps will need to be squarely addressed (Gu & Carey, 2019; Gil, Stafford, & Musonda, 2019; OECD/ACET, 2020).

Finally, a possible game changer has come on to the scene in the form of an agreement on a $650 billion issue of SDRs in the context of COVID-19.

Unused SDRs of developed countries are to be pooled into a new Fund at the IMF, with governance arrangements and modalities currently under discussion. Developed countries have been able to create trillions at the touch of a central bank button. Such funding for developing countries is justified not simply on the grounds of equity in the international system, but for functional reasons – financially starved developing countries cannot play their essential role in global health system integrity and in the longer-term health of the global economy. Spreading wellbeing in low income countries is essential to a well-ordered world in the coming SDG decade and beyond with a global population of 10 billion people. Regular SDR top-ups to such a fund could become a regular feature of development finance and development programming, based on predictable scaling up.