3.2 Financing Development II: Economic Report on Africa 2007
3.2 Financing Development II: Economic Report on Africa 2007
Since the Monterrey Consensus was adopted, efforts have been made by both developed
and developing countries to hold donors accountable for the pledges and commitments
made to developing countries. In this section, we examine the extent to
which donors have lived up to their promises and pledges to Africa in three key
areas: scaling-up of aid; improving aid effectiveness; and debt relief or debt cancellation.
Due to data limitations, some parts of our analysis will focus on commitments
made by the G-8 countries.
Compliance with regard to aid quantity
The key target that donors have set for themselves on aid is to attain an ODA to
GNI ratio of 0.7 per cent. Since this target was set in 1969, only a few countries
have met it. In 2004, the average ratio for DAC members was 0.26 per cent. That
said, Denmark, Luxembourg, the Netherlands, Norway, and Sweden have met the
target. Countries such as Belgium, France, Portugal, and Switzerland have also made
significant progress although they are yet to meet the target. Among DAC members,
Japan, the USA, and Italy have the lowest ODA/GNI ratios - below 0.20 per cent
in 2004.
The G-8 Research Group at the University of Toronto, Canada, has developed a very
useful methodology for assessing the extent to which G-8 countries comply with the
commitments made at their annual summits. The assessment uses a three-category
scoring method: Full or near full compliance with commitment results in a score of
+1; Complete or nearly complete failure to implement a commitment results in a score of -1; and an “inability to commit” or “work-in-progress” leads to a score of 0.
An inability to commit refers to factors outside the executive branch that impedes
the implementation of a commitment while “work-in-progress” refers to an initiative
that has been launched by a government but is not yet near completion.
Using this scoring methodology, the performance of the G-8 countries in terms of
meeting the commitments made to Africa and the developing world on scaling-up
aid falls into the category “work-in-progress.” This is because the G-8 countries have
only met part of the commitments made on scaling-up aid to developing countries
and to Africa in particular. One of the reasons why these G-8 countries as a group
have not fully complied with their commitments to scale-up aid to Africa is that
some of them have not made much progress in following through on their commitments
to double ODA to Africa. The USA, one of the big donors, has made some
progress in complying with its commitments although it is not enough to double
aid to Africa by 2010. In contrast, Canada, France, Germany, the United Kingdom
and EU have all fully complied with their commitments in this area and so have a
score of +1.
Compliance with regard to aid effectiveness
The quantity of aid is important but the overall effectiveness of any form of aid
depends to a large extent on its quality. Consequently, in discussions on aid, it is now
popular to talk about the quality of aid and aid effectiveness in recipient countries.
There are various factors that determine the overall quality of aid and hence its effectiveness.
These include the proportion of aid that is tied, the extent to which aid is
in the form of grants or concessional loans, the proportion of aid that goes to poor
as opposed to relatively rich countries, the state of governance in recipient countries,
and the administrative or transactions costs associated with aid.
Table 3.4 presents the percentage of bilateral ODA from DAC member countries to
LDCs that is untied. To the extent that more than half of the LDCs are in Africa,
the table captures the region’s experience with tied aid as well. It is clear from the
table that there has been a reduction in the percentage of aid from DAC member
countries that is tied. Over the period 1999-2001, 55 per cent of total DAC aid to
LDCs was untied. In 2004, the figure rose to 68 per cent.
Looking at individual DAC countries, however, there are wide differences in performance.
Countries such as Finland, Ireland, Luxembourg, Norway and the United
Kingdom have successfully moved away from tied to untied aid. The USA, New
Zealand, and Greece have a very low ratio of untied aid to total aid and so are at the
bottom of the list. More progress needs to be made by these countries, especially the
USA, if the DAC average is to improve significantly.
Regarding the composition of aid, there has also been progress in this area. The share
of grants in total ODA has increased over the years. For DAC countries, the average
was roughly 49 per cent over the period 1980-1984 (Gupta, Pattillo, and Wagh
2006). For the 2003-2004 period, the average was 90 per cent. In DAC countries
such as Australia, Austria, Canada, Greece, Ireland, Luxembourg, Netherlands, and
New Zealand, grants represent 100 per cent of ODA. At 60 per cent, Japan has the
lowest ratio of grant to total ODA. An improvement is needed in this area if Japan
is to catch up with the other donors. The increasing share of grants in total ODA is
a welcome development in African countries. Several countries are already heavily
indebted and are looking for ways to reduce their debt burden. Reducing their proportion
of loans in total ODA prevents further accumulation of debts.
Compliance with regard to debt relief
Debt relief is one area in which G-8 countries and other donors have made significant
progress in meeting their commitments. At Gleneagles, donors promised that
all debts owed by eligible HIPC to IMF, IDA, and the African Development Fund
would be cancelled. The G-8 Research Group has also examined the extent to which
member countries have honoured the commitments made in Gleneagles on debt
relief and found that they have fully complied with all commitments in this area.
The outstanding performance of the G-8 in the area of debt relief is due in part to
their commitment and support to the HIPC initiative and to the MDRI. The HIPC
initiative was established in 1996 to reduce the debt burden of eligible countries. As
a result of slow progress in attaining the debt reduction objective of the initiative,
an enhanced version was launched in 1999 with relatively less restrictive eligibility
criteria. As of July 2006, 40 countries had either qualified or were currently under
consideration or were potentially eligible for debt relief under the initiative. Of the
40 countries, 19 have reached the completion point, 10 have reached the decision
point and 11 are pre-decision point countries. In addition, of the 19 countries that
have reached the completion point, 15 are in Africa.
In addition to supporting debt relief under the HIPC initiative, G-8 countries were
also behind the launching of MDRI in 2005 to reduce the debt burden of eligible
HIPC countries and provide additional resources to help them meet the MDGs.
Under the MDRI, the IDA, IMF and AfDB would provide 100 per cent debt relief
on eligible debt to countries that had completed the HIPC process. Although these
three institutions are responsible for delivery of debt relief under MDRI, each institution
has its own guidelines on how it will implement the agreements. For example,
while only HIPC countries are eligible for MDRI provided by IDA and AfDB, the
IMF also considers non-HIPC countries with per capita income of $380 or less.
Furthermore, for IMF and AfDB, eligible debt is outstanding debt as of end-2004.
For IDA, it is outstanding debt as of end-2003. As of mid-July 2006, committed
assistance to African countries under the HIPC initiative and assistance delivered or
expected to be delivered under MDRI was $50 billion (IDA and IMF 2006). Of
this amount, $34 billion was committed under the HIPC initiative and $15.9 billion
under MDRI. Within the HIPC allocation, $21.6 billion represented assistance
to the 15 African countries that reached the completion point as at mid-July 2006,
while $12.5 billion represented assistance to 10 African countries that have reached
the decision point.
In summary, while donors have made significant progress in meeting commitments
on debt relief, they have made relatively less effort in fulfilling the pledges made on
scaling-up aid and improving aid effectiveness. Urgent actions need to be taken in
these areas to enable African countries obtain the pledged resources needed to attain
the MDGs.
32 Financing Development II Economic Report on Africa 2007 - To learn more about this author, visit United Nations Economic Commission for Africa's Website.
Like this article? Share it with your friends
Monitoring implementation of commitments
Since the Monterrey Consensus was adopted, efforts have been made by both developed
and developing countries to hold donors accountable for the pledges and commitments
made to developing countries. In this section, we examine the extent to
which donors have lived up to their promises and pledges to Africa in three key
areas: scaling-up of aid; improving aid effectiveness; and debt relief or debt cancellation.
Due to data limitations, some parts of our analysis will focus on commitments
made by the G-8 countries.
Compliance with regard to aid quantity
The key target that donors have set for themselves on aid is to attain an ODA to
GNI ratio of 0.7 per cent. Since this target was set in 1969, only a few countries
have met it. In 2004, the average ratio for DAC members was 0.26 per cent. That
said, Denmark, Luxembourg, the Netherlands, Norway, and Sweden have met the
target. Countries such as Belgium, France, Portugal, and Switzerland have also made
significant progress although they are yet to meet the target. Among DAC members,
Japan, the USA, and Italy have the lowest ODA/GNI ratios - below 0.20 per cent
in 2004.
The G-8 Research Group at the University of Toronto, Canada, has developed a very
useful methodology for assessing the extent to which G-8 countries comply with the
commitments made at their annual summits. The assessment uses a three-category
scoring method: Full or near full compliance with commitment results in a score of
+1; Complete or nearly complete failure to implement a commitment results in a score of -1; and an “inability to commit” or “work-in-progress” leads to a score of 0.
An inability to commit refers to factors outside the executive branch that impedes
the implementation of a commitment while “work-in-progress” refers to an initiative
that has been launched by a government but is not yet near completion.
Using this scoring methodology, the performance of the G-8 countries in terms of
meeting the commitments made to Africa and the developing world on scaling-up
aid falls into the category “work-in-progress.” This is because the G-8 countries have
only met part of the commitments made on scaling-up aid to developing countries
and to Africa in particular. One of the reasons why these G-8 countries as a group
have not fully complied with their commitments to scale-up aid to Africa is that
some of them have not made much progress in following through on their commitments
to double ODA to Africa. The USA, one of the big donors, has made some
progress in complying with its commitments although it is not enough to double
aid to Africa by 2010. In contrast, Canada, France, Germany, the United Kingdom
and EU have all fully complied with their commitments in this area and so have a
score of +1.
Compliance with regard to aid effectiveness
The quantity of aid is important but the overall effectiveness of any form of aid
depends to a large extent on its quality. Consequently, in discussions on aid, it is now
popular to talk about the quality of aid and aid effectiveness in recipient countries.
There are various factors that determine the overall quality of aid and hence its effectiveness.
These include the proportion of aid that is tied, the extent to which aid is
in the form of grants or concessional loans, the proportion of aid that goes to poor
as opposed to relatively rich countries, the state of governance in recipient countries,
and the administrative or transactions costs associated with aid.
Table 3.4 presents the percentage of bilateral ODA from DAC member countries to
LDCs that is untied. To the extent that more than half of the LDCs are in Africa,
the table captures the region’s experience with tied aid as well. It is clear from the
table that there has been a reduction in the percentage of aid from DAC member
countries that is tied. Over the period 1999-2001, 55 per cent of total DAC aid to
LDCs was untied. In 2004, the figure rose to 68 per cent.
Looking at individual DAC countries, however, there are wide differences in performance.
Countries such as Finland, Ireland, Luxembourg, Norway and the United
Kingdom have successfully moved away from tied to untied aid. The USA, New
Zealand, and Greece have a very low ratio of untied aid to total aid and so are at the
bottom of the list. More progress needs to be made by these countries, especially the
USA, if the DAC average is to improve significantly.
Regarding the composition of aid, there has also been progress in this area. The share
of grants in total ODA has increased over the years. For DAC countries, the average
was roughly 49 per cent over the period 1980-1984 (Gupta, Pattillo, and Wagh
2006). For the 2003-2004 period, the average was 90 per cent. In DAC countries
such as Australia, Austria, Canada, Greece, Ireland, Luxembourg, Netherlands, and
New Zealand, grants represent 100 per cent of ODA. At 60 per cent, Japan has the
lowest ratio of grant to total ODA. An improvement is needed in this area if Japan
is to catch up with the other donors. The increasing share of grants in total ODA is
a welcome development in African countries. Several countries are already heavily
indebted and are looking for ways to reduce their debt burden. Reducing their proportion
of loans in total ODA prevents further accumulation of debts.
Compliance with regard to debt relief
Debt relief is one area in which G-8 countries and other donors have made significant
progress in meeting their commitments. At Gleneagles, donors promised that
all debts owed by eligible HIPC to IMF, IDA, and the African Development Fund
would be cancelled. The G-8 Research Group has also examined the extent to which
member countries have honoured the commitments made in Gleneagles on debt
relief and found that they have fully complied with all commitments in this area.
The outstanding performance of the G-8 in the area of debt relief is due in part to
their commitment and support to the HIPC initiative and to the MDRI. The HIPC
initiative was established in 1996 to reduce the debt burden of eligible countries. As
a result of slow progress in attaining the debt reduction objective of the initiative,
an enhanced version was launched in 1999 with relatively less restrictive eligibility
criteria. As of July 2006, 40 countries had either qualified or were currently under
consideration or were potentially eligible for debt relief under the initiative. Of the
40 countries, 19 have reached the completion point, 10 have reached the decision
point and 11 are pre-decision point countries. In addition, of the 19 countries that
have reached the completion point, 15 are in Africa.
In addition to supporting debt relief under the HIPC initiative, G-8 countries were
also behind the launching of MDRI in 2005 to reduce the debt burden of eligible
HIPC countries and provide additional resources to help them meet the MDGs.
Under the MDRI, the IDA, IMF and AfDB would provide 100 per cent debt relief
on eligible debt to countries that had completed the HIPC process. Although these
three institutions are responsible for delivery of debt relief under MDRI, each institution
has its own guidelines on how it will implement the agreements. For example,
while only HIPC countries are eligible for MDRI provided by IDA and AfDB, the
IMF also considers non-HIPC countries with per capita income of $380 or less.
Furthermore, for IMF and AfDB, eligible debt is outstanding debt as of end-2004.
For IDA, it is outstanding debt as of end-2003. As of mid-July 2006, committed
assistance to African countries under the HIPC initiative and assistance delivered or
expected to be delivered under MDRI was $50 billion (IDA and IMF 2006). Of
this amount, $34 billion was committed under the HIPC initiative and $15.9 billion
under MDRI. Within the HIPC allocation, $21.6 billion represented assistance
to the 15 African countries that reached the completion point as at mid-July 2006,
while $12.5 billion represented assistance to 10 African countries that have reached
the decision point.
In summary, while donors have made significant progress in meeting commitments
on debt relief, they have made relatively less effort in fulfilling the pledges made on
scaling-up aid and improving aid effectiveness. Urgent actions need to be taken in
these areas to enable African countries obtain the pledged resources needed to attain
the MDGs.
32 Financing Development II Economic Report on Africa 2007 - To learn more about this author, visit United Nations Economic Commission for Africa's Website.
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