Information about Sub-Saharan Africa África subsahariana
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II New Official Financing Flows to Developing Countries

Author(s):
International Monetary Fund
Published Date:
March 1998
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Official bilateral financing remains an important source of finance for developing countries, particularly countries with limited access to international capital markets. Analysis of the flows must take into account systematic differences in the statistics derived from debtor and creditor sources and in their coverage of the various instruments (see Box 1). What follows is based primarily on creditor data from the OECD Development Assistance Committee (DAC). Figure 1 illustrates both the providers and the recipients of official flows.

Figure 1.Direction of Net Official Flows, 1995/96

(In billions of U.S. dollars)

Sources: Tables 1 and 2.

Note: Figures are for 1995/1996 (…where 1996 figures are not yet available). ODA: Hows of official financing with the main objective of promoting economic development, and with a grant element of al least 25 percent (based on a 10 percent discount rate). Other official flows: ODF that does not meet the ODA criteria: includes officially supported export credits.

1Multilateral disbursements (including from IMF) differ from DAC countries’ contribution to multilateral institutions.

2Flows have been negligible since 1992.

3Mostly Arab countries.

4Receipts of official financing reported by some country authorities suggest that the OECD figures may understate the flows.

Total net ODF, comprising total official flows excluding officially supported export credits, to developing countries has changed little in recent years and has amounted to about $70 billion in the 1990s (Figure 2 and Table 1). In real terms, after adjustment is made for changes in prices and exchange rates, ODF flows changed little in 1996, but have declined by nearly 17 percent since 1990. One factor that has contributed to the decline in official flows has been the substitution of private capital flows for non-concessional borrowing from official sources for those developing countries with access to international capital markets. At the same time, there were competing demands for official resources; in fact, official financing to countries in transition more than doubled in nominal terms between 1990 and 1995 to at least $20 billion (the latest year for which data are available).

Figure 2.Net ODF Flows to Developing Countries

(In billions of U.S. dollars)

Source: Table 1.

Table 1.Total Net Official Financing Flows to Developing Countries
19901991199219931994199519961
(In billions of U.S. dollars)
Net official development finance (ODF)269.369.368.968.470.871.269.5
Net official development assistance (ODA)352.658.557.954.959.759.257.7
Other16.711.110.913.711.112.011.8
Bilateral45.746.747.844.548.047.943.3
ODA339.242.340.438.140.540.035.4
Other6.54.47.46.47.57.97.9
Multilateral423.622.921.024.122.823.326.2
ODA13.416.217.516.819.219.222.3
Other10.26.73.57.33.64.13.9
(In percent of total ODF)
Bilateral65.967.469.465.167.867.362.3
ODA356.661.058.655.757.256.250.9
Other9.46.310.79.410.611.111.4
Multilateral34.133.030.535.232.232.737.7
ODA19.323.425.424.627.127.032.1
Other14.79.75.110.75.15.85.6
(In billions Of U.S. dollars)
Memorandum items
ODF (at constant 1995 prices and exchange rates)86.183.277.978.677.871.271.5
Total net flows5122.8118.3130.8131.6210.4232.4307.0
Net official financing to countries in transition68.712.810.814.115.819.7
Of which: Net official aid2.36.66.06.06.88.3
ODA share of respective ODF (in percent)
Total75.984.484.080.384.383.183.0
Bilateral85.890.684.585.684.483.581.8
Multilateral56.870.783.369.784.282.485.1
Source: Organization for Economic Cooperation and Development.

Provisional.

See glossary for definitions of ODA and ODF. For a list or aid recipients, see Table A1. Based on resource receipts of developing countries in Part 1 of the OECD’s DAC list of aid recipients.

Excluding debt forgiveness of non-ODA claims (including military debt) in 1990 ($1.5 billion), 1991 ($1.9 billion), and 1992 ($1.9 billion). Differs from bilateral ODA in Table 2 because non-DAC industrial donors are included (see memorandum items in Table 2).

Disbursements by multilateral institutions (see Table 2 for contributions to multilateral institutions). Includes only concessional flows from the IMF.

Includes ODF, export credits, foreign direct investments, international bank and bond lending, grants by nongovernmental organizations, and other private flows. Preliminary statistics for 1996 do not include data on flows to countries in transition.

Comprises countries in transition in Part II of the OECD’s DAC list of aid recipients (Table A1). Includes official aid, officially supported export credits, and other official financing. Rows within countries in transition are excluded. Receipts reported by some country authorities suggest that the OECD Figures may understate the flows.

Source: Organization for Economic Cooperation and Development.

Provisional.

See glossary for definitions of ODA and ODF. For a list or aid recipients, see Table A1. Based on resource receipts of developing countries in Part 1 of the OECD’s DAC list of aid recipients.

Excluding debt forgiveness of non-ODA claims (including military debt) in 1990 ($1.5 billion), 1991 ($1.9 billion), and 1992 ($1.9 billion). Differs from bilateral ODA in Table 2 because non-DAC industrial donors are included (see memorandum items in Table 2).

Disbursements by multilateral institutions (see Table 2 for contributions to multilateral institutions). Includes only concessional flows from the IMF.

Includes ODF, export credits, foreign direct investments, international bank and bond lending, grants by nongovernmental organizations, and other private flows. Preliminary statistics for 1996 do not include data on flows to countries in transition.

Comprises countries in transition in Part II of the OECD’s DAC list of aid recipients (Table A1). Includes official aid, officially supported export credits, and other official financing. Rows within countries in transition are excluded. Receipts reported by some country authorities suggest that the OECD Figures may understate the flows.

Box 1.Data Sources and Definitions for Official Financing Flows

The World Bank and the Organization for Economic Cooperation and Development (OECD) are the main compilers of data on official financing flows. World Bank data—published annually in Global Development Finance (formerly the World Debt Tables)—are derived from a debtor-based information system. Disbursements of officially insured credits are classified as disbursements from banks or suppliers, and, as a result, official bilateral support is understated in that it covers only disbursements, not guarantees. The coverage of military debt is not comprehensive.

The World Bank definition of developing countries includes all low- and middle-income countries (except economies with a population of less than 30, 000), including countries in transition. The 1997 Global Development Finance included 136 developing countries that reported data to the World Bank.

OECD Development Assistance Committee (DAC) data—published in the Geographical Distribution of Financial Flows to Aid Recipients 1991/1995 (Organization for Economic Cooperation and Development, 1997b) are derived from creditor sources. The data are, however, available only with a considerable lag: as of July 1997, estimates for aggregate net disbursements were available for 1996, while the comprehensive individual country data were available only for 1995.

The OECD defines official development assistance (ODA) as grants or loans to developing countries in Pan I of the DAC list of aid recipients that are undertaken by the official sector, with promotion of economic development and welfare as the main objective, and are extended at concessional terms (with a grant element of at least 25 percent). The grant element is defined as the difference between the face value of a loan and the present value, calculated at a discount rate of 10 percent, of the debt-service payments to be made over the lifetime of the loan, expressed as a percentage of the face value. For example, the grant element is nil if the loan carries an interest rate of 10 percent; it is 100 percent for a grant; and it lies between these two limits for a soft loan. It is widely acknowledged that there are problems associated with the use of a fixed discount rate of 10 percent (Kuhn, Horvath, and Jarvis, 1995, Appendix III). Other official development financing (ODF) comprises flows for development purposes that have too low a grant element to qualify as ODA. The definition of other official development financing excludes officially supported export credits, because export credits are regarded as primarily trade promoting rather than development oriented. EMF financing from the General Resources Account is excluded, while financing from the Trust Fund, Structural Adjustment Facility (SAF), and Enhanced Structural Adjustment Facility (ESAF) is included. ODF is the sum of ODA and other forms of official development financing.

The OECD definition of developing countries includes those countries in Part I of the DAC list of aid recipients (see Table A1). This includes more than a dozen countries that the World Bank considers high-income countries, including Bermuda and Israel, as well as some low-and middle-income countries with populations of less than 30, 000. The OECD classification of developing countries excludes, but the World Bank includes, most of the countries in transition in Eastern Europe (Bulgaria, Czech Republic, Hungary, Poland, Romania, and Slovak Republic) and the Baltic countries, Russia, and some other countries of the former Soviet Union (Belarus, Moldova, and Ukraine). These countries are in Part If of the DAC list of aid recipients.

The differences in coverage and definition make World Bank and OECD data difficult to reconcile without detailed knowledge of the respective databases. For example, the OECD recorded net ODF from multilateral institutions to developing countries as $26 billion in 1996 (Table 1), while the World Bank recorded significantly lower net disbursements from multilateral institutions to all countries, at $15 billion in 1996. Part of the explanation for this difference lies in the different definition of multilateral institutions and the treatment of grants. For instance, the OECD includes significant grants from UN agencies and the European Union in ODF from multilateral institutions, while the World Bank does not record these flows in the multilateral category (it uses instead the total OECD grant figure when calculating total flows to all countries).

Data on officially supported export credits are compiled by the OECD, the OECD and the Bank for International Settlements (BIS) together, and the Berne Union, each with different concepts and coverage.

Section II relies primarily on OECD-DAC data.

Bilateral sources still provide the bulk of ODF flows—about two-thirds—yet their share in total ODF has been declining gradually. In 1996, bilateral ODF at $43 billion registered a sharp decline in both real (7 percent) and nominal terms (10 percent) because of a reduction in its ODA component (Table 1). This was partly offset by a 16 percent increase, in real terms, in ODF from multilateral sources to $26 billion, which was entirely attributable to a significant rise in multilateral ODA flows. Nonetheless, ODF from multilateral sources has declined by nearly 8 percent in real terms since 1990. At the same time, the composition of multilateral ODF indicates a shift in favor of ODA flows, reflecting the trend toward more concessional financing for the poorest countries with limited debt-servicing capacity.3

Net ODA flows constitute the bulk (close to 85 percent) of total net ODF flows and are provided largely (95 percent of total ODA flows) by the members of the DAC.4 These are mainly provided directly to developing countries ($41 billion in 1995) or take the form of contributions to multilateral institutions ($18 billion) (Figure 1 and Table 2). The development assistance effort, as measured by the ratio of ODA flows from DAC member countries to their combined GNP, declined in 1996 to 0.25 percent—the lowest ratio recorded in the nearly 30 years since the United Nations established a goal of 0.7 percent of GNP (Figures 3 and 4 and Table 3). In 1996, only four countries exceeded the UN target: Denmark, Netherlands, Norway, and Sweden. These countries combined contributed nearly 15 percent of total ODA flows from the members of DAC.

Table 2.Net ODA Disbursements to Developing Countries
19901991199219931994199519961
(In billions of U.S. dollars)
Total net ODA53.056.760.856.559.258.955.1
Bilateral ODA237.241.341.239.441.340.6
Contributions to multilateral institutions315.815.419.617.117.918.3
Total net ODA (at 1995 prices and exchange rates)64.867.467.864.964.858.956.4
Bilateral ODA51.753.747.547.245.440.6
Contributions to multilateral institutions17.716.620.017.817.916.7
(In percent of donors’ GNP)
Total net ODA0.330.330.330.300.300.270.25
Bilateral ODA0.240.230.240.210.210.19
Contributions to multilateral institutions0.090.100.090.090.090.08
(In percent of total)
Distribution4
Net ODA by income group
Least developed countries27.625.927.026.526.627.5
Low-income countries27.628.927.824.926.223.6
Lower-middle-income countries22.122.222.125.024.924.6
Upper-middle-income countries4.23.73.04.23.84.3
High-income countries3.13.53.93.02.81.4
Unallocated15.415.816.316.515.918.6
Net ODA by region
Sub-Saharan Africa30.928.631.130.530.930.5
North Africa and Middle East19.919.514.812.113.69.8
Asia22.724.125.725.227.025.6
Western Hemisphere9.29.79.19.910.011.4
Europe52.53.63.75.63.63.8
Other614.814.515.616.814.918.9
(In billions of U.S. dollars)
Memorandum items
Total net ODA to developing countries752.958.658.956.460.562.4
Development Assistance Committee countries237.241.341.239.441.340.6
Multilateral institutions13.416.217.516.819.219.2
Other flows82.31.10.20.22.6
Total flows within developing countries (net ODA)96.02.61.01.21.20.7
Sources: Organization for Economic Cooperation and Development; and IMF staff estimates.

Provisional.

Excludes debt forgiveness of non-ODA claims (including military debt) in 1990 ($1.5 billion), 1991 ($1.9 billion), and 1992 ($1.9 billion).

Includes contributions to the IMF Trust Fund, Interest Subsidy Account, SAF, ESAF, and Administered Account.

Distribution of total net ODA from DAC and Other sources, including unspecified. The data are not consistent with the aggregate data because the country-level detail of revised aggregate data is not yet available; however, the revisions to the aggregate data were not large.

Excludes countries in transition not in Part I of the OECD’s DAC list of aid recipients.

Oceania and unspecified.

Excludes resource flows within developing countries; based on resource receipts of developing countries, consistent with Table 1.

Other industrial countries and unallocated.

Includes flows from Arab countries and other developing country donors (including China, India, Korea, and Taiwan Province of China).

Sources: Organization for Economic Cooperation and Development; and IMF staff estimates.

Provisional.

Excludes debt forgiveness of non-ODA claims (including military debt) in 1990 ($1.5 billion), 1991 ($1.9 billion), and 1992 ($1.9 billion).

Includes contributions to the IMF Trust Fund, Interest Subsidy Account, SAF, ESAF, and Administered Account.

Distribution of total net ODA from DAC and Other sources, including unspecified. The data are not consistent with the aggregate data because the country-level detail of revised aggregate data is not yet available; however, the revisions to the aggregate data were not large.

Excludes countries in transition not in Part I of the OECD’s DAC list of aid recipients.

Oceania and unspecified.

Excludes resource flows within developing countries; based on resource receipts of developing countries, consistent with Table 1.

Other industrial countries and unallocated.

Includes flows from Arab countries and other developing country donors (including China, India, Korea, and Taiwan Province of China).

Figure 3.Net ODA Disbursements

Sources: Tables 1 and 3.

Figure 4.Net ODA Disbursements by Major DAC Donors, 1996

Source: Organization for Economic Cooperation and Development.

1Figures on top of the country columns give net ODA disbursements in percent of the country’s GNP.

2Figures on top of the country columns give net ODA disbursements in billions of U.S. dollars.

Table 3.Net ODA Disbursements by Major DAC Countries
At Current PricesAt Constant 1995 Prices1 (Prov. 1996)Change 1995/96Share of Donor’s GNP (Prov. 1996)
199019912199221993219941995Prov. 1996At current pricesAt constant 1995 prices1
(In billions of U.S. dollars)(In percent)
Canada2.52.62.52.42.32.11.81.7-14.3-19.00.31
Denmark1.21.21.41.31.41.61.81.810.610.61.04
France7.27.48.37.98.58.47.47.5-11.9-11.10.48
Germany6.36.97.67.06.87.57.57.80.34.30.32
Italy3.43.34.13.02.71.62.42.250.037.50.20
Japan9.111.011.211.313.214.59.410.9-35.1-24.70.20
Netherlands2.52.52.82.52.53.23.33.43.16.30.83
Sweden2.02.12.51.81.81.72.01.817.65.90.85
United Kingdom2.63.23.22.93.23.23.23.10.5-2.70.27
United States11.411.311.710.19.97.49.18.92320.30.12
Ten major donors above346.649.653.350.252.451.247.949.1-6.4-4.1
Other DAC donors46.37.17.56.26.87.77.27.3-6.7-4.9
Total DAC353.056.760.856.559.258.955.156.4-6.4-4.20.25
(in percent of GNP)0.330.330.330.300.300.270.25
Source: Organization for Economic Cooperation and Development.

At 1995 prices and exchange rates.

Includes debt forgiveness of non-ODA claims.

Excludes debt forgiveness of non-ODA claims.

Includes Australia, Austria, Belgium, Finland, Ireland, Luxembourg, New Zealand, Norway, Portugal, Spain, and Switzerland.

Source: Organization for Economic Cooperation and Development.

At 1995 prices and exchange rates.

Includes debt forgiveness of non-ODA claims.

Excludes debt forgiveness of non-ODA claims.

Includes Australia, Austria, Belgium, Finland, Ireland, Luxembourg, New Zealand, Norway, Portugal, Spain, and Switzerland.

An analysis of developments in ODA flows from major DAC countries in 1996 shows that the overall decline in ODA represented largely a decline of $5 billion, or 25 percent in real terms, in flows from Japan, which nonetheless remained the largest ODA provider. The nominal decline reflected in part exchange rate movements. In addition, however, Japan’s contributions to multilateral institutions declined in 1996, and rising repayments dampened net flows of bilateral ODA loans. This decline was partly offset by higher aid flows from Italy and the United States, which rebounded from their unusually low levels in 1995, reflecting in part the timing of their subscriptions to multilateral agencies; in the United States, delays in approving the 1996 budget implied that two years’ worth of grant disbursements to some major recipients were included in the 1996 data. Nonetheless, ODA flows from these two countries in 1996 remained below their 1990–94 levels. Among the other major ODA providers, Denmark, Germany, the Netherlands, and Sweden increased their ODA flows in 1996, while Canada, France, and the United Kingdom decreased theirs. The outlook for a recovery in ODA flows is bleak because of the continuing fiscal consolidation and continuing aid fatigue in most DAC member countries and Japan’s plans for a 10 percent cut in its foreign aid budget for the 1998 fiscal year.

Data on the regional and income distribution of disbursements of ODA from DAC member countries become available only with long lags (Table A2). The main change in 1995 was a rise in the share of flows to Asia, the main recipient, to 35 percent, with sub-Saharan Africa the second largest recipient at 24 percent. The share of disbursements to North Africa and the Middle East dropped by 5 percentage points in 1995, mainly as a result of sharply lower disbursements to Israel from the United States and to Egypt from Germany and Italy. In terms of income groups, retaining the historical pattern, nearly three-fourths of ODA was received by the groups of least developed countries, low-income countries, and lower-middle-income countries combined.

In 1996, DAC members reassessed their aid policies in the light of the changing policy environment, the growing complexity of development finance, and the wide diversity that exists among developing countries. An ambitious new strategy to guide future development cooperation was set out in the 1996 DAC report (Box 2) (Organization for Economic Cooperation and Development, Development Assistance Committee, 1996). This included, for the first time, a set of quantitative targets for poverty alleviation, social development, and environmental sustainability against which the success of development cooperation is to be measured. In May 1997, DAC members agreed on guidelines regarding the related issues of conflict, peace, and development cooperation (Organization for Economic Cooperation and Development, Development Assistance Committee, 1997a)—spelling out approaches and key policies to help prevent violent conflicts in developing countries before human and material destruction spirals out of control and before an international response becomes vastly more difficult and costly—and on participatory development and good governance (Organization for Economic Cooperation and Development, Development Assistance Committee, 1997c). The guidelines on good governance reflect the growing consensus among ODA providers that participatory, accountable, and efficient governance harnesses the activities of the state and its citizens to the objectives of sustainable social and economic development. Aid policies, therefore, should attempt to strengthen the nexus among development, local participation, and governance for achieving the goals specified in the DAC strategy.5

Box 2.Guiding Principles of Aid Disbursement Policies

The lessons of past development cooperation show that, properly applied in propitious environments, development assistance has been able to achieve a significant improvement in the quality of life of a large number of people in many developing countries. However, at the same time, the experience shows that development assistance is essentially a complementary factor, albeit a critical one: civil conflict and poor governance, despite aid, can set back development for generations. Based on the above experience and the need to meet new challenges posed by the increased complexity of relationships between the industrial and the developing countries and changing circumstances within the developing countries themselves, DAC member countries in 1995 adopted the policy statement “Development Partnership in the New Global Context” and subsequently outlined in their 1996 report, Shaping the 21st Century, a shared approach to development cooperation and have pledged to modify and strengthen their aid disbursement policies accordingly.

This strategy includes, for the first time, quantitative targets as well as key qualitative factors. The quantitative targets for poverty reduction, social development, and environmental sustainability are drawn from those already endorsed in other international forums.1 They reflect broad agreement in the international community on measures of progress and have been arrived at with the active participation of developing countries.

1. Economic well-being. The proportion of people living in extreme poverty in developing countries should be reduced by at least one-half by 2015.

2. Social development. There should be substantial progress in primary education, gender equality, basic health care, and family planning, as follows:

  • universal primary education in all countries by 2015;
  • demonstrated progress toward gender equality and the empowerment of women by eliminating gender disparity in primary and secondary education by 2005;
  • a two-thirds reduction in the mortality rates for infants and children under age 5 and a three-fourths reduction in maternal mortality, all by 2015; and
  • access through primary health care system to reproductive health services for all individuals of appropriate ages as soon as possible and no later than 2015.

3. Environmental sustainability and regeneration. Implementation of national strategies for sustainable development in all countries by 2005, so as to ensure that current trends in the loss of environmental resources are effectively reversed at both global and national levels by 2015.

The 21st Century strategy also stresses that aid programs should focus on several key qualitative factors, reflecting an increasing awareness that attainment of the above measurable goals will depend on more stable, safe, participatory, and just societies. This requires the development of capacity for effective, democratic, and accountable governance; the protection of human rights; and respect for the rule of law. Thus, successful development strategies must integrate a number of key elements:

  • a sound policy framework encouraging a stable, growing economy with full scope for a vigorous private sector and an adequate fiscal base;
  • investment in social development, especially education, primary health care, and population activities;
  • enhanced participation of all people, notably women, in economic and political life and the reduction of social inequalities;
  • good governance and public management, democratic accountability, the protection of human rights, and the rule of law;
  • sustainable environmental practices; and
  • efforts to address root causes of potential conflict, limit military expenditure, and target reconstruction and peace-building efforts toward longer-term reconciliation and development.
1United Nations conferences on education (Jomtien, 1990), children (New York, 1990), the environment (Rio de Janeiro. 1992). human rights (Vienna. 1993), population (Cairo, 1994), social development (Copenhagen, 1995), and women (Beijing, 1995).

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