Overseas development aid (ODA) jumped 6.1% last year to reach a record $134.8 (€97.8) billion, according to new figures from the Organisation for Economic Cooperation and Development (OECD), marking a “rebound” after two years of falling donations.

Some 17 of the OECD’s 28 member countries increased their ODA spending in 2013, bringing the group’s average aid spending to 0.3% of Gross National Income, although this is still less than half the 0.7% figure that developed countries have pledged to meet by 2015.

“It is heartening to see governments increasing their development aid budgets again, despite the financial constraints they are currently facing,” said the OECD Secretary-General Angel Gurría, even if she remained concerned that assistance to some of the neediest countries was continuing to fall. Most donor activity appears to have been targeted on middle-income countries with bilateral aid to sub-Saharan Africa dropping off by 4% in real terms last year, and assistance to the Africa as a whole plummeting by 5.6%.

For the OECD’s 19 EU member states, the aid increase in 2013 came to 5.2% - a full 0.42% of their combined GNI. But while the UK increased aid spending 27.8%, France’s spending fell 9.8%, and in austerity-hit Portugal, ODA declined by a dramatic 20.4%.   

Oxfam warned that this was far too little to meet the 2015 target, and noted that even among the big OECD-DACs (Development Aid Contributors), too much assistance was still being supplied in the form of ‘tied aid’ that must be spent in the country which provided it.

“It’s bad enough that most of Europe’s wealthiest countries are far from reaching their aid promises but counting funding that never gets to poor countries, like debt relief and export credits, as aid is simply unacceptable,” Natalia Alonso, the head of Oxfam’s EU office told EurActiv.

“Clearly, the EU still has a long way to go to meet our collective commitment,” the EU’s development commissioner, Andris Piebalgs commented, “but measures taken by some member states show that we can deliver on our promises, even in difficult budgetary circumstances, provided the political will is there.”

Some measures though may be primarily statistical, according to the OECD. While total bilateral ODA grants rose by 7.7% in real terms, around half of this figure was made up by writing off debts, many of which might anyway not have been repaid.

The longevity of some of the aid spending may also be contested. One OECD state, the United Arab Emirates now leads the ODA table, with a 1.25% score, after registering a 375.5% spike in its aid spending. This was due to financial and infrastructure contributions to Egypt – after the Muslim Brotherhood government was overthrown. Turkey meanwhile notched up a 29.7% aid increase due to the crisis in Syria.

Private sector engagement rules

The new, additional, and genuinely altruistic proportion of such aid is often contested, as is the way that private sector funding should be counted within it.

The European Commission will later this month publish a set of ‘private sector engagement’ principles – but not rules – governing how the ‘for-profit’ sector should be engaged in development assistance.

“We will put quite some emphasis on strengthening dialogue with the private sector on development issues and on how we can promote the private sector locally,” an EU official told EurActiv.

OECD rules currently allow loans with a grant element of at least 25% to be logged as ODA – though this has proved controversial - and stepping up use of this mechanism may allow the 0.7% target to be met, on paper at least.

“The idea is to step up use of blending mechanisms with development banks, but then in the mid-term, we would be keen to expand it to bring in more private investors,” the official said.

A report by the development group Eurodad earlier this year found that the current system allowed profit-making loans to count as aid and inflated the value of donors’ commitments.  Ambiguous OECD-DAC rules – which may be revised this June – left the system open to abuse by donors such as France and Germany, and risked an actual increase in debt distress. 

Free rider effect

Arbitrary and very high reference interest rates allowed predatory lending to be counted as ODA, without increasing actual aid budgets, the report found.

Similarly, vague ‘concessional in character’ requirements allowed risk-mitigating mechanisms such as sovereign guarantees and credit default risk to count as aid.  

“Obviously, when you do this [involvement] with private investors you have to be particularly vigilant that it really has a development objective,” the EU official said. “We don’t want to be seen to subsidise private investments that would be done anyway. We don’t want a free rider effect.”

Other measures in the Commission’s proposal may include support for business organisations, improved investor safety, establishing a dialogue platform with the private sector and a possible twinning of the European and American chambers of commerce.

A set of OECD indicators also published yesterday showed that economic growth was likely to slow in most large developing world economies, but to grow in the Eurozone.