Paris: This third DAC Report on Multilateral Aid considers the latest trends in members’ multilateral development assistance and delves into why and how governments invest in multilateral aid channels.
Trends in Multilateral Aid
Between 2000 and 2009, multilateral ODA increased from USD 26.6 billion to USD 36.2 billion. The rise represents an average annual growth rate of 3%, compared to total gross ODA’s rate of 4%.
Core multilateral contributions as a share of ODA fell to a low of 28% (USD 36 billion) in 2009 from a peak of 33% in 2001. Though scored as bilateral ODA, an additional 12% (USD 15 billion) was earmarked by sector, country, region or theme and channelled through multilateral organisations in 2009. Taken together, core and earmarked multilateral contributions account for 40% of gross ODA, or USD 51 billion, a very large sum that falls under a kaleidoscope of accountability arrangements.
At the risk of oversimplifying, the diverse reasons for allocating bilateral and multilateral aid can be condensed to the basic tension between, on the one hand, the desire for control and accountability over how resources are spent, and, on the other hand, the wider benefits of pooling resources, presence, and expertise. Recent research indicates that the “principal-agent” model may best explain the decisions involved in choosing multilateral aid. In this model, an individual donor (principal) and multilateral agency (agent) are divided between the loss of control over funds and the benefits of burden sharing. How well the preferences of the agent align with those of the principal will often determine the degree to which this loss of control is a preoccupation for the principal, or donor.
Earmarked funding through multilateral organisations is growing faster than other components of ODA. Behind this trend are strong rationales, which were introduced in last year’s report. Earmarking allows donors to track results more easily, to have greater say over specific uses, and to raise the visibility of their contributions in the eyes of domestic constituencies. Several donors have also decided to concentrate their bilateral aid on fewer partner countries, which encourages them to channel funds through multilaterals to maintain a minimum attributable footprint in a specific region. Some DAC members refer to the practices of earmarking aid and concentrating it on certain partner countries as the growing “multilateralisation” of bilateral aid. At the same time, multilateral organisations may legitimately speak of a growing “bilateralisation” of multilateral aid.
According to donors’ forward-spending surveys, almost two-thirds of countries (98 countries out of 152) in all regions are projected to receive lower aggregate levels of aid from both bilateral and multilateral channels by 2013, 27 of which are LDCs. Some of the predicted decreases may prove overly pessimistic, given the high recent levels of uncertainty which can lead to abnormally cautious forward planning. Multilateral outflows, which tend to ensure more even distribution across countries than bilateral aid, can help mitigate the falls in ODA. But they will be able to do so only to a limited extent, unless their resource base increases much faster than now appears likely.
DAC Multilateral ODA Shares
As the figure below shows, multilateral aid excluding contributions to EU institutions accounts for the highest shares of gross ODA in Korea (29%), Italy (28%), and Sweden (26%) and for the lowest in Portugal (12%), the United States (12%), and Greece (11%). Looking at all multilateral aid (including to EU institutions) in DAC member countries, it accounts for the highest shares of gross ODA in Italy (73%), Austria (54%), and Greece (53%), and the lowest in Japan (19%), Australia (15%), and the United States (12%). While these figures alone may not allow any conclusions to be drawn as to donor preferences, donors on the right-hand side of the graph have larger bilateral programmes in place than those on the left and/or contribute much less to non-EU multilateral development agencies.
Concentration on Multilateral Clusters
Data from 2009 confirm that DAC members channel a high proportion (over 81%) of their core multilateral aid into five main clusters of multilaterals. They are the EDF-plus-EU budget (37%), IDA (21%), UN Funds and Programmes (10%), the African and Asian Development Banks (5% and 3%), and the Global Fund (6%). Only 18% of multilateral aid goes to the remaining multilateral organisations which number over 200 and often provide technical assistance or serve norm- and standard-setting purposes.
Twenty DAC non-member countries reported their aid flows to the DAC Secretariat in 2009, while some larger ones (Brazil, the Russian Federation, China, and India) did not. The eleven non-DAC EU member states directed 66% of their total ODA to multilaterals (including EU institutions), while the average multilateral ODA of non-DAC donor states (excluding the Arab donors for which data are not comparable) was 31%. Larger regional players such as Brazil and the Russian Federation allotted substantial multilateral aid to regional organisations or funds. It is unlikely that multilateral aid accounts for high shares of China’s and India’s ODA: although they increasingly contribute to concessional funds like IDA, they already have large and rapidly growing bilateral programmes. This report includes brief case studies of the Russian Federation and Brazil’s multilateral aid.
- Main Findings
* Total use of the multilateral system (multilateral ODA plus earmarked funding channelled through multilaterals) reached a historic high in 2009 at USD 51 billion – Paragraphs 35, 37, and 40.
* The share of core multilateral ODA has maintained its downward trajectory for the past decade if contributions to EU institutions are excluded. Contributions to the Global Fund increased, however, and funding to UN agencies regained 2005’s modest levels. Funding to EU institutions increased by 11% from 2008 to 2009 – Paragraphs 34, 41 and 43.
* Bilateral ODA channelled through multilaterals and earmarked for a specific purpose, sector, region or country grew from USD 13.4 billion in 2008 to USD 15 billion in 2009 to account for 12% of total ODA. It is still growing fast – Paragraphs 40 and 44.
* As donors cut budgets and decide to concentrate on fewer partner countries, there are incentives for the “bilateralisation” of multilateral contributions to maintain at least a presence a specific country, region, or thematic area. Some DAC members refer to this as the growing “multilateralisation” of bilateral aid – Paragraph 45.
* Future spending surveys point to declining amounts of country-programmable aid to most developing countries, particularly vulnerable groups such as LDCs, in the next three years. Multilateral outflows cannot be expected to mitigate declining ODA, especially if their resource base does not increase significantly– Paragraphs 48 and 49.
* DAC members continue to channel over 80% of their multilateral ODA into just five organisations or clusters: IDA, EU, UN Funds and Programmes, African and Asian Development Banks, and the Global Fund – Paragraph 50.
* Non-DAC EU donors direct a high share of their aid to EU institutions, while larger regional players such as Brazil and the Russian Federation allot substantial multilateral aid to regional organisations or funds. China and India contribute lower shares of multilateral aid, usually preferring to use bilateral channels. China and other middle-income countries, however, played a key funding role in IDA16 replenishment by accelerating repayments of concessional loans, for example, and agreeing to tougher terms for future loans. (Paragraph 52 and Boxes 2.2, 2.3, and 2.4)
- Executive summary, Main findings to: 2011 DAC report on multilateral aid, OECD report dated 8 November 2011. The 79 page report can be accessed here.