Raquel Luna – At the 2024’s World Economic Forum in Davos, the president (and editor-in-chief) of Devex, Raj Kumar, presented a panel named “the humanitarian system under pressure”[1]. He noted that “humanitarians (…) are giving a sense that they never felt so stretched before. Their institutions feel overwhelmed”. According to Kumar, the world is in “a state of growing humanitarian crises” and the impacts can be felt even in “advanced economies in rich countries” that have developed with Covid-19 and after, with the rising cost of living, the impacts of the climate crisis, and conflicts such as the war in Ukraine.
One of the speakers, Kitty Van der Heidjen, Deputy Executive Director for Partnerships at UNICEF, acknowledged the need to go beyond humanitarian aid to address the root causes of crises. That is, she appealed for the way in which larger development aid, official development assistance (ODA), is being employed for sustainable long-term solutions. The three speakers highlighted the need for increased funding, the challenge of its fair distribution, and the importance of local civil society in its delivery. David Miliband, president and CEO of the International Rescue Committee, noted that from his perspective, the politicization of aid is the most difficult challenge to overcome.
The sense of pressure is not unique to humanitarian aid.
Grappling with aid under pressure
“Aid under Pressure” is the title of a United Nations’ report published in April 2024 on global ODA for the year 2022. The report emphasizes the importance of ODA as “the most stable and predictable source of external financing for developing countries, especially in times of crises”.
| Official Development Assistance (ODA) is defined as government aid designed to promote the economic development and welfare of developing countries. Loans and credits for military purposes are excluded. Aid may be provided bilaterally, from donor to recipient, or channeled through a multilateral development agency such as the United Nations or the World Bank. Source: OECD library. |
Global ODA reached a peak in 2022, totaling US$287 billion (at constant 2021 prices). This represents an impressive increase of 22% compared to 2021. Still, this amount falls short of the Sustainable Development Goal (SDG) 17 aid target of providing ODA equivalent to 0.7% of the Gross National Income (GNI). Two elements stand out. On the one hand, ODA from Development Assistance Committee (DAC) donors remained US$134 billion below SDG 17. On the other hand, ODA is undergoing shifts that may hinder sustainable development. The shifts in ODA seem to be driven by the impact of the crises, by reshuffling priorities and creating new demands.
| The Development Assistance Committee (DAC) is an international committee acting under the auspices of the Organisation for Economic Co-operation and Development (OECD). The DAC has currently 32 members: Australia, Austria, Belgium, Canada, Czechia, Denmark, European Union, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Lithuania, Luxembourg, The Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, United Kingdom, United States. Source: OECD. |
Despite the global peak in ODA in 2022, surprisingly (or not), ODA to developing countries declined by 2% (compared to 2021): “Aid flows to developing regions fell by $4 billion.” This decrease “affected the majority of developing countries, including 24 Least Developed Countries (LDCs) and 15 Small Island Developing States (SIDS)”. In contrast, ODA to developed countries increased by 338% over the same period. The overall increase of ODA was driven by two items: $28 billion were allocated to developed countries in 2022, and $20 billion were allocated to asylum seekers and refugees in donor countries (largely under the rubric ‘unspecified’ recipients).
The United Nations report underlines three shifts:
1. Although multilateral donors (such as the United Nations) increased their support during crises, bilateral donors still account for the largest share of ODA.
While bilateral donors decreased their ODA to developing regions (DAC members by -6% amounting $105 billion and non-DAC countries by -5% amounting $16 billion), only multilateral donors increased their contribution by 7% to $50 billion.[1] Among bilateral donors, DAC members remain the biggest source of aid to developing countries. In 2022, 61% of ODA to developing countries was provided by DAC members, compared to 76% in 2012. Multilateral donors have become more important since the COVID-19 pandemic, increasing their share from 23% in 2012 to 29% in 2022.
The biggest bilateral donor to developing countries is the European Union, which accounts for 41% of all the bilateral ODA to developing countries in 2022.
2. ODA is shifting from grants to loans, increasing the debt burden of developing countries.
According to the report, “ODA is increasingly provided through concessional loans, rather than grants”. Compared to 2021, in 2022 ODA grants to developing countries decreased by -8% ($109 billion) and loans increased by 11% ($61 billion). Overall, the share of grants in total ODA decreased significantly (from 68% in 2021 to 63% in 2022). It is noteworthy that there is a shift towards loans in every developing region: in Latin America and the Caribbean, loans now account for 49%, in Asia and Oceania 40%, and in Africa 29%.
Given the growing debt distress and rising interest rates in international markets, the increase in the share of loans in ODA raises concerns: “Debt-creating ODA worsens debt sustainability”. Particularly for high-risk countries already facing debt distress, loans represent a major burden in the context of post-Covid-19 fiscal struggles and the global monetary tightening.
3. The need to respond to crises puts pressure on sustainable development financing.
The multiple crises, accompanied by “the need for emergency responses, compete with long-term development priorities”. This challenge was noted by Van der Heidjen at the Davos panel mentioned in the introduction. While humanitarian aid has been the fastest growing ODA element over the last decade and was the third largest component of ODA to developing regions in 2022, “ODA for action relating to debt reached a historic low in 2022”. The historic low meant a decrease from a peak of 48% of total ODA for debt-related action in developing countries in 2006 to 0.2% ($0.3 billion) in 2022.
According to the report, “the world’s poorest countries were not spared from the challenging aid landscape”: a decrease of -4% in 2022 (the lowest level in a decade). The sector that experienced the largest decline in the LDCs for the period 2012 to 2022 was ODA for debt-related operations (-17% per year on average), making LDCs more dependent on ODA loans.
In addition to the three shifts above, the UN report considers food, energy and debt as important crises transmission channels, particularly important for LDCs. In 2022, ODA for agricultural development stagnated (food aid kept rising, ODA shifted from food security to food aid) and ODA for debt actions reached its lowest level ever. ODA in the area of energy peaked for renewable energy.
Beyond the overall pressure on ODA reported by the UN, there are NGO voices expressing concerns for the instrumentalization of aid.
The tendency to instrumentalize aid within the EU
Coordination SUD published a briefing paper in December 2023 (in the context of the European elections) in which it states that the instrumentalization of aid “consists in subordinating and conditioning the EU’s international solidarity policies to other political interests, such as migration, trade and military policies”.[2] This risk at the EU level refers to three aspects:
For migration control: This trend became evident after the Valletta Action Plan in 2015 when for the first time migration control was a key development strategy of the EU. It would later materialize in the creation of emergency funds, such as the Emergency Trust Fund (EFT) to “meet the challenges of migration movements” and it was “deployed to control and limit migration in third countries”. It had allocated more than 5 billion euros for a period of 6 years. An example is the 2016 EU-Turkey Statement that conditioned development aid on Turkey’s cooperation in returning and readmitting migrants. It was further pushed by “the Regulation on the EU’s main development instrument, the Neighbourhood, Development and International Cooperation Instrument – Global Europe (NDICI-GE)” in 2021 (approximately 7.9 billion euros). An Oxfam EU study confirms the security orientation of projects from 2021 onwards in Niger, Tunisia and Libya.
In humanitarian aid: There is a risk that EU’s humanitarian aid does not respect the four principles of humanity, neutrality, impartiality and independence in order to “safeguard it from economic, military, political and other considerations”. According to the paper, “between crises, there are imbalances in financing that can be explained by the priorities given to certain regions by donors”. In the context of the legitimate fight against terrorism through sanctions regimes and restrictive measures, the humanitarian exemption (into sanctions regimes and criminal law) remains crucial.
For private economic interests: The ‘Team Europe’ approach and the ‘Global Gateway’ strategy raise concerns “as they blur the lines between geopolitical interests and development objectives”. On the one hand, the ‘Global Gateway’ strategy lacks a clear development mandate and carries “sometimes conflicting ambitions that favor trade, financial and foreign-policy interests”. It aims to “mobilize private financing for development” through a blending approach. On the other hand, “the conditional use of ODA to attract private investment tends to direct aid towards middle-income countries at the expense of the poorest countries” and “leads to a focus of funds on lucrative sectors rather than on basic social services”. The Business Advisory Group (BAG) has a prominent role, reinforcing concerns about the “excessive influence of the European private sector, with the risk of favouring European companies at the expense of local stakeholders and poverty reduction”.
Luxembourg’s commitments and future regarding development aid
For its part, Luxembourg has met its commitment in 2022, as seen in the AidWatch report published in October 2023[4] :
| In 2022, Luxembourg’s ODA amounted to EUR 503.87 million (10.5% more than in 2021) and continued to represent 1% of the GNI.[5]
Luxembourg has diversified its cooperation partnership in Africa and Central America. New framework cooperation agreements have been signed with Rwanda, Benin and Costa Rica. Luxembourg continues to meet its commitment to devote at least 0.2% of its GNI to LDCs and more than six of the 10 partner countries are LDCs. 2022 saw an increase in the budget allocated to multilateral organisations, including the signing of a first multi-year framework agreement for the period 2023 – 2025 with UN Women. The Directorate for Development Cooperation has published a new strategy for humanitarian action in 2022. This strategy commits Luxembourg to devoting at least 15% of ODA resources to humanitarian purposes. Humanitarian aid, which is included in bilateral cooperation, accounted for 17.39% of ODA in 2022, an increase of almost 4% compared with 2021. Luxembourg remains faithful to its commitment to dedicate 1% of its GNI to ODA and focus on key areas such as climate finance and in-donor refugee costs, grant-based ODA, CSO financing and LDC financing). Government’s relationship with civil society The relations between the Ministry of Foreign and European Affairs (MFEA) and NGOs are open and frank. A working group comprising NGOs and the MFEA meets regularly and provides a forum for discussion. NGOs are invited to table issues on the meeting-agenda. NGOs are consulted when new strategies or tools are devised by the MFEA. However, participation processes could be optimised and information shared in a timely manner in order to allow a more meaningful and substantive NGO participation. Recommendations:
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Footnotes:
[1] The three speakers were Filippo Grandi, the 11th United Nations High Commissioner for Refugees; Kitty Van der Heidjen, the Deputy Executive Director for Partnerships at UNICEF; and David Miliband, President and CEO of the International Rescue Committee.
[2] In 2022, ODA still exceeded pre-pandemic levels for all donor groups.
[3]https://www.coordinationsud.org/wp-content/uploads/CSUD-Briefing_Note_Instrumentalisation33.pdf
[4] CONCORD, AidWatch 2023 : Bursting the ODA inflation bubble, p. 52, 2023 https://aidwatch.concordeurope.org/2023-report/ (consulted the 4 june 2024).
[5] According to the Cercle, this figure corresponds to the calculation made by the team of consultants in order to obtain the actual aid. The figure for Luxembourg’s ODA in the annual cooperation report is 503.87 million euros.
