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08/12/2016

Growing share of European development aid disguised as loans

Development Policy

Growing share of European development aid disguised as loans

Countries using loans as aid will affect vital health grants in developing countries like Mozambique, Action for Global Health warned.

[Thomas Williams/Action for Global Health]

EXCLUSIVE: About a third of German, and more than half of French development aid payments made since 2005 were in fact loans to poorer countries on which they will receive interest, EurActiv can reveal.

Last year, Germany and France fell far short of their 2015 development aid targets, despite bundling loans and domestic administrative costs with grants as part of their total payment.

In 2005, EU member states committed to increase Official Development Assistance (ODA) to 0.7% of Gross National Income (GNI) by 2015. That was reaffirmed at a meeting of EU leaders in February 2013.

Only the UK, Denmark, Sweden, Norway and Luxembourg hit the 0.7% target in 2013. Those countries used either no, or very few, loans to make up their numbers in 2013. 

The UK surpassed the 0.7% target for ODA spending by paying $17.9 billion (€14.45 billion) in 2013. $17 billion (€13.72 billion) of that was in aid grants. In 2013, 7.2% of ODA payments by the UK took the form of loans. Only 5% of Norway’s ODA were loans, and Sweden has never used loans to bump up its ODA.

Total bilateral ODA loans as percentage of bilateral ODA.Total bilateral ODA loans as percentage of bilateral ODA.

Germany

Research using Organisation for Economic Cooperation and Development (OECD) figures by Action for Global Health, a NGO, showed that Germany’s aid was just 0.387% of GNI, a total of $14.1 billion (€10.6 billion), in 2013.

Despite Germany’s status as the European Union’s leading economy, $2.8 billion (€2.1 billion) of aid came in the form of loans, which must be repaid and carry interest.

In 2013, Germany was repaid $1.7 billion (€1.3 billion) in ODA loan repayments. Since 2005, Germany has got back an average of €200 million annually in interest on its ODA loans.

A further $1.6 billion (€1.2 billon) is reported as “non-transfer” aid. This figure includes administrative costs incurred in Germany and takes into account debt relief.  The G8 group of major economies committed to write off $100 billion (€80.73 billion) in developing country debts in 1999.

Loans and non-transfer items total $4.2 billion (€3.31 billion) , almost 40% of the total German aid package. LAst year, almost a third (30.3%) of Germany’s aid payments were made in loans.

Of the 0.7%, 0.1% is earmarked for health aid. In 2012, Germany paid out 0.029% of its GNI in health aid, about a third of its 2015 target.

ODA loan repayments to Germany since 2005.ODA loan repayments to Germany since 2005.

France

Since 2005, more than half (55%) of French ODA was in the form of loans. Between €200 and €300 mllion, on average, in interest on previous loans has been paid back to France annually.

In 2013, France spent $11.4 billion (€8.6 billion), 0.41% of its GNI, on ODA payments, including loans ($3 billion/€2.42 billion)) and non-transfer payments ($2.7 billion). $1.7 billion (€1.37 billion) interest was repaid from previous loans.

Combined, the loan and non-transfer payments are almost the same as the $6.6 billion (€5.2 billion) France paid in traditional aid grants. Health spending in 2012was just under half of the 0.047%, called for in the 2005 agreement.

ODA loan repayments to France since 2005.ODA loan repayments to France since 2005.

Worrying trend

As ODA loans have increased over the last decade, the amount of ODA grants has dropped, particularly in France.

ODA loans have increased, as ODA grants have dippedODA loans have increased, as ODA grants have dipped

Action for Global Health coordinator Tim Roosen said it was disappointing France and Germany were not doing more, especially as Germany could afford to.

“We are deeply concerned about the trend of an increased use of loans. Non-productive sectors such as health are unlikely to benefit from loans as the majority of funding needed for health is dependent on grants. If the increase of loans continues, grants will decrease,” he said.

Germany could equal the UK in terms of ODA for health, and they need to urgently step up their efforts, he added.

The research will be published in a report next week. Action for Global Health has an ODA tracker, that gives more information about payments.

Foreign affairs ministers will meet in Brussels today (12 December) and will discuss development goals post 2015. Today is also Universal Health Coverage Day. A global coalition of 400 NGOs, co-partnered by Action for Global Health, is calling health to be a corners of sustainable development.

Commission

In April this year, the European Commission called on member states to intensify their efforts to increase development aid. EU collective ODA (EU institutions and member states) increased from €55.3 billion in 2012 to €56.5 billion in 2013, after two consecutive years of decline. EU collective ODA remained at 0.43% of EU gross national income (GNI), the same level as the year before.

Andris Piebalgs, then Commissioner for development, said at the time, “I am glad to see that the recent decline in ODA spending seems to have been reversed and we are seeing a positive trend again. Clearly, the EU still has a long way to go to meet our collective commitment, but measures taken by some member states show that we can deliver on our promises, even in difficult budgetary circumstances.”

The Commission and the French and German development agencies were asked to comment on this story this morning. The article will be updated with their response. 

Background

Since 1997, aid to developing countries constantly increased until its peak in 2010, according to statistics published by the OECD’s Development Assistance Committee (DAC).

Official development aid decreased between 2010 and 2012, victim of many governments’ austerity measures. Aid budgets bounced back in 2013.

But ODA payments are not all grants of money, some take the form of loans, which must be repaid with interest.

Further Reading

European Commission

NGOs & think tanks

Press articles