Introduction
We are living through events few could have predicted a couple of years ago. The consequences of another war in Europe are being felt across the world in the form of increasing energy and food prices; climate change is devastating ecosystems around the world; inequalities are soaring. The world is at a crossroads where international cooperation efforts can help countries withstand the impact of these shocks while building a more sustainable and equitable world, but only if it is done the right way. Decision-makers face a difficult, yet vital series of choices to make in this critical juncture.
AidWatch reports offer insights and recommendations for policymakers dealing with these challenges. They assess European ODA, a precious tool to support those left furthest behind, in terms of quantity and quality. AidWatch represents civil society views on ODA trends and urges European policymakers to honor their commitments for partner countries’ own development objectives.
The 2023 AidWatch report employs a revised methodology, dissecting the official ODA definition to gauge the EU’s contribution to overall objectives. This reassessment is vital to redefine the concept of ‘inflated aid’ and its relevance in the debate on aid quality.
Using the revised methodology, the report critically analyses the EU’s financial support to partner countries. It questions how much of this support can genuinely qualify as ODA. The report then evaluates how ODA supports countries’ economic development and welfare, thereby acting as a powerful tool to reduce inequalities between and within countries. Additionally, it provides a detailed country-by-country analysis for EU Member States and the United Kingdom.
ASSESSING AID INFLATION
According to OECD figures, EU Member States’ reported EUR 84 billion in ODA in 2022, representing an increase of 19% in real terms compared to 2021. In terms of reaching the longstanding commitment of allocating the 0.7% GNI to ODA, EU MS reached an equally all-time-high reported figure of 0.59%.
While these numbers are at a record high, a closer look reveals that, as in previous years, the EU and its Member States counted billions of euro as aid despite many flows not meeting the most basic criteria to be considered ODA. Even despite this, only three Member States reached or exceeded the minimum 0.7% GNI/ODA target: Luxembourg, Sweden, and Germany.
The key question is: how much of this reported ODA is a genuine effort made by governments of donor countries to provide funding on concessional terms to partner countries for fulfilling the objectives stated in the ODA definition? An analytical review of ODA expenditure which can be considered not to conform to one or more of the three first criteria of the definition of ODA outlined above has allowed CONCORD to identify five ODA items which contribute to inflate the aid figures and thus need to be excluded wholly or partially from ODA flows.
Find a description of each element below.
In-donor refugee costs
In 2022, the EU27 reported EUR 13.9 billion in in-donor refugee costs, nearly three times the previous three-year average (EUR 4.9 billion in 2021). This shows the huge the impact of Russia’s war in Ukraine on ODA levels. These costs accounted for 17% of reported ODA flows (up from 7% in the previous year). Nine EU countries had over a quarter of their reported ODA as in-donor refugee costs.
It is important to note that including in-donor refugee costs in ODA figures is a policy decision by Member States. Some, like Luxembourg, exclude these costs while maintaining high support levels for partner countries (usually near or above 1% GNI/ODA). Three Member States (Belgium, Hungary, and Slovakia) chose to exclude costs for Ukrainian refugees this year, aligning with CONCORD’s position to exclude all in-donor refugee costs from ODA figures, showcasing the power of Member States to make the right decision.
Imputed student costs
Imputed student costs represent an estimated share of education spending attributed to foreign students from ODA-eligible countries. Donor countries can record these costs as ODA, but since they do not represent a financial flow to partner countries and are not part of programmes designed to support partner countries specifically, they should not be considered ODA.
In 2022, the EU27 reported around EUR 2.8 billion in imputed student costs (compared to EUR 2.6 billion in 2021). This figure has been relatively stable over time, constituting approximately 3% of recent ODA flows. Few EU countries report imputed student costs: Austria, France, Germany, Italy, Poland, Portugal, Slovenia, and Spain. In 2023, Belgium decided not to report imputed student costs as ODA, starting with 2022 data, which is a positive move.
Grant equivalent from ODA loans
CONCORD has previously highlighted in AidWatch reports that, while the grant equivalent reporting for loans can be fairer and more accurate in assessing donor efforts on ODA, current practices employ a uniform discount rate, regardless of market conditions, leading to significant distortions in the ODA loan calculations.
This year’s AidWatch report recalculates the grant equivalent value of ODA loans using more realistic market-based discount rates. The revised grant equivalents are notably lower than reported figures. Depending on the year, figures reported using the OECD methodology exceed the AidWatch recalculated grant equivalent by 82% to 132%. The ODA inflation due to the current grant equivalent methodology is estimated at EUR 1.7 billion in 2022, up from EUR 1.6 billion in 2021.
Debt relief
When calculating the grant equivalent of ODA loans, the risk premium already considers default risk, making the inclusion of ODA for debt relief a form of double counting.
Based in preliminary figures, EU donors reported EUR 129 million in canceled debts as ODA in 2022, (0.1% of the total). However, historical data shows that final figures can significantly exceed preliminary estimates. For instance, preliminary figures in 2021 constituted about half of the consolidated total. Despite the modest initial figures, debt relief represents a substantial portion of reported ODA in Slovenia (13%) and Portugal (9%).
Private sector instruments
In 2023, the OECD made decisions about counting certain private sector investments as ODA, a concern raised by the AidWatch report for accurate aid reporting.
One concern is the use of the term “additionality”, used to determine if private sector investments qualify as aid, which lacks clarity and merely indicates investments reliant on public-private partnerships, without clear aid inclusion guidelines.
Another concern is the dual reporting approach: one assesses the total funding to development financial institutions (institutional), and the other examines individual investments (instrument), causing data inconsistencies and complicating aid criteria verification. The method for estimating the aid value also has flaws, relying on fixed rates that overlook real-world partner country conditions.
While private sector investments play a growing role in reported aid, their counting and valuation raise concerns. Addressing these issues is essential to ensure that aid commitments, particularly from global north countries, support global equality and solidarity worldwide.
How much is really ODA?
When putting together all the above-mentioned elements, inflated ODA accounted for 22% of reported ODA in 2022, up from 15% in 2021. This increase is mostly explained by soaring in-donor refugee costs resulting from the war in Ukraine. Inflated ODA resulting from the reporting of ODA loans also shows a significant increase compared to the previous year. The most immediate consequence of this is that one euro in every five from the reported figures does not meet the definition of official development assistance.
Once inflated aid is deducted from reported ODA, total non-inflated ODA from EU donors (EU27 and EU institutions) stood at EUR 65.4 billion in 2022. This is an increase of EUR 9.7 billion or 17% in real terms compared to the previous year. Between 2019 and 2022, EU non-inflated ODA has expanded by EUR 14 billion, a 27% increase in real terms.
EU AID AS A CONTRIBUTION TO THE ECONOMIC DEVELOPMENT AND WELFARE OBJECTIVES OF PARTNER COUNTRIES
To meet the ODA criteria, financial flows should primarily aim to “promote economic development and welfare in partner countries,” aligning ODA allocations with each country’s specific development needs and aspirations, shaped by various country-specific factors.
Analysing the degree to which ODA primarily serves economic development and welfare in partner countries can take different approaches. CONCORD therefore first looks at the distribution of ODA between countries, ensuring that the countries left furthest behind receive a proportionally higher share to reduce inequalities internationally. Secondly, it examines whether ODA helps reduce inequalities within countries by directing aid spending towards the benefit of the people in partner nations.
ODA AS A TOOL FOR ACHIEVING EQUALITY BETWEEN COUNTRIES
One of the most comprehensive indicators to assess economic development and welfare is the Human Development Index (HDI), covering education, health, and per capita Purchasing Power Parity (PPP) GNI. In this report, ODA recipient countries are categorised based on their HDI ranking to facilitate an aggregate analysis of ODA allocations.
Concerning bilateral country funding analysed in 2021, 40% of ODA was allocated to the bottom 40% countries by HDI, while 47% was directed to countries in the top 40%. Reducing international inequality requires a disproportionate allocation to the bottom 40% rather than the top 40%. Notably, the trend reveals increasing inequality in ODA distribution between countries, with the gap between the bottom and top 40% growing from 1% in 2019 to 7% in 2022.
In examining ODA allocations to individual countries over 2019-2021, the top 10 recipients of EU and Member States’ ODA remained largely stable. Türkiye, Afghanistan, Syria, and Ukraine consistently ranked as the top four recipients. In 2021, these countries received substantial amounts, far exceeding the average per-country ODA level of EUR 198 million. Ethiopia and Palestine also remained in the top 10, while newcomers in 2021 included Jordan, Somalia, Lebanon, and the Democratic Republic of Congo, replacing earlier large recipients.
The connection between ODA flows over 2019-2021 and EU immigration trends is apparent, with Türkiye, Afghanistan, and Syria leading both in ODA and EU asylum applications in 2021. However, apart from Afghanistan, none of these countries fall into the bottom 20% HDI group. This raises questions about the extent to which EU ODA serves self-serving purposes, such as addressing immigration flows into Europe, responding to geopolitical, security, and economic interests, and whether it truly aligns with the fourth criterion of the ODA definition and contributes to reducing international inequalities.
ODA as a tool to reduce inequalities within countries
Tackling inequalities within countries involves addressing a complex and wide range of policy sectors. For this AidWatch report, CONCORD focuses on the EU’s efforts in sectors with a particular potential to reduce inequalities within countries significantly. Therefore, human development, gender equality, climate change and the involvement of civil society, are covered in the report.
ODA for human development
Education, social protection, and equitable access to basic services like health, water, and sanitation are critical tools for reducing income inequality and improving well-being within countries, aligning closely with the ODA objective of promoting “economic development and welfare” in partner countries.
Resources dedicated to human development, an EU priority, have risen from 22% of total non-inflated ODA in 2019 (EUR 5.5 billion) to 27% in 2021 (EUR 7.4 billion), primarily due to increased health spending.
Yet, European support for human development in the bottom 40% HDI countries accounted for 26.6% of non-inflated ODA in 2021 (EUR 2.9 billion), compared to 27.7% (EUR 3.57 billion) allocated to the top 40% HDI countries. This imbalance fails to address the varying needs in human development, contributing to inequalities within and between countries.
Climate finance
EU support to fight climate change in partner countries is increasing, but slowly. Climate finance is usually divided into two categories: adaptation and mitigation finance. Supporting adaptation is crucial from an equality perspective because structural inequalities are closely tied to climate change, disproportionately affecting those with fewer resources. This leads to a vicious cycle where climate hazards worsen economic development and welfare, deepening inequality. Climate finance for adaptation helps compensate for these structural inequalities and break this cycle.
Amid growing evidence of the effects of climate change, EU donors provided EUR 8.4 billion in climate finance to developing countries in 2021, up from EUR 7.9 billion in 2020 and EUR 7.2 billion in 2019, accounting for 17% of non-inflated bilateral ODA.
CONCORD is concerned that climate finance might come at the expense of other ODA areas. Climate finance undermines the impact of ODA in two ways. Firstly, EU donors are failing to make climate finance additional to ODA commitments, with a recent CARE report showing that 93% of climate finance reported by wealthy countries between 2011 and 2020 came directly from development aid.
More significantly, EU support for climate change primarily favors mitigation over adaptation projects. In 2022, EUR 3.1 billion went to adaptation projects, representing 37% of climate finance within ODA, with the rest allocated to mitigation projects. This contradicts the commitment to balance mitigation and adaptation funding, jointly made with the pledge to provide USD 100 billion (approximately EUR 91.4 billion) in additional climate finance per year.
ODA for gender equality
The EU is committed to addressing gender inequalities through its Gender Action Plan III 2021-2025 (GAP III). However, when assessing ODA spending from 2019 to 2021, gender mainstreaming has not seen significant changes. In 2021, over half (54%) of non-inflated ODA either lacked gender tagging entirely (9%) or was tagged for actions where gender was not an objective (45%). Only 41% of ODA spending was marked as actions with a significant gender objective (G1), and 5% had gender as the main objective (G2). This outcome is unsurprising, as GAP III’s objectives are based on new commitments in the number of actions.
Five Member States do not use the gender tag at all, while three applied it to less than half of their ODA. Among consistent users of the gender marker, the Netherlands, Sweden, Ireland, and the EU institutions performed well, with Finland notably improving from 37% in 2019 to 52% in 2021.
The EU27 and EU institutions’ track record in supporting gender equality falls short of GAP III’s objectives, which aim for gender mainstreaming in at least 85% of all new actions and 5% of actions with gender equality as a principal objective. However, the EU has slightly improved in supporting women’s organizations, with an 8% increase in 2020 and a further 17% increase in 2021, totaling EUR 329 million in 2021, or 0.6% of total non-inflated ODA.
ODA to and through CSOs
In 2021, EU donors provided EUR 8.5 billion in ODA to CSOs, increasing from EUR 8.1 billion in 2020 and EUR 7.7 billion in 2019. However, the share of ODA going to CSOs decreased from 18.5% in 2019 to 17.3% in 2021, not keeping pace with ODA growth. The majority of these funds (83% in 2021) were earmarked for CSO-implemented projects, highlighting the significant role CSOs play in ODA delivery from EU donors. In three EU Member States, CSO ODA comprised over a third of non-inflated bilateral ODA in 2021: Spain (55%), Ireland (41%), and Sweden (34%), while others like Belgium, Czechia, Estonia, and Luxembourg reached or approached 30%.
Despite their vital role in project implementation, CSOs are increasingly struggling to maintain their independence. The core funding they receive is limited and has been decreasing over time. Core funding is essential for building strong and independent CSOs that advocate for people’s needs, uphold human rights, and demand accountability in program design and financing. In 2021, only 17% of the funding for CSOs was provided as flexible core funding for their organizational costs and objectives.
It is also crucial to strengthen support for CSOs in partner countries. They play a vital role in identifying pressing needs and priorities, possessing an in-depth understanding of local conditions and the impact of inequalities in their communities. Of the total support for CSOs in EU ODA in 2021, only 10% was allocated to civil society organizations in partner countries. Given the challenging environment for small and medium-sized CSOs in many partner countries, ensuring accessible funding for these organizations is especially relevant.
Recommendations to the EU
The EU (including its Member States) must improve the quantity and quality of ODA to reaffirm its role as an important stakeholder in global sustainable development and to ensure progress is made towards achieving the SDGs by 2030.
