2Definition
Reverse graduation
18.Under DAC rules, countries classed by the World Bank as ‘high income’ are not ODA Recipients and a financial transfer received cannot be defined as ODA by the donor.22 High-income countries have of course received humanitarian assistance (typically in the aftermath of a natural disaster). In 2011, for example, Japan received humanitarian assistance from a number of countries following the Tohuku earthquake and tsunami–none of this was counted as ODA.23 More recently, following Hurricane Irma, the UK provided significant humanitarian assistance to the affected British Overseas Territories (including Anguilla, the British Virgin Islands and the Turks and Caicos Islands). Little of this assistance counted as ODA because almost all of the territories affected are classed as high-income.24
19.As countries develop economically, and their GNI rises, they are regarded as first ‘in transition’ and then ‘graduating’ from one income category to another. Once a country has ‘graduated’ to high income status (US$12,236 p.a. GNI) it stops being an ODA recipient.25
20.Recently, however, an issue arose in relation to the potential impact of natural disasters on small states. If a natural disaster was particularly severe, it might cause a small or otherwise fragile country or territory to fall back into middle-income status. Anguilla, for example, might fall back into middle-income status once the economic consequences of Hurricane Irma become apparent. Blondel Cluff, Anguilla’s Representative to the UK and EU, has pointed out that unlike the other Overseas Territories affected by the hurricane, Anguilla only graduated from being an ODA Recipient relatively recently, in 2014.26
21.The DAC rules do not currently provide specifically for ‘reverse graduation’ back into ODA eligibility. Brenda Killen, Deputy Director of the DAC’s Secretariat, was keen to stress to us that reverse graduation was in fact neither permitted nor prohibited. In its High-Level Communique of 31 October 2017, following pressure from the UK Government, the DAC stated:
We recognise the particular vulnerability and fragility that graduate countries can face in the event of a humanitarian crisis. More holistic consideration should be given to financing needs for resilience and recovery. We request the Secretariat to develop for DAC consideration evidence-based proposals for reinstatement. Further, the DAC will, in consultation with relevant stakeholders, establish a process to examine short-term financing mechanisms available to respond to catastrophic humanitarian crises in recently graduated HICs, including, without prejudice, a possible role for ODA spending based on objective criteria while ensuring no diversion of resources from existing ODA recipients.27
22.In its written evidence to our inquiry, the Government explained its rationale for supporting the notion of a reverse graduation mechanism:
There is a precedent in the development community outside the DAC of such requirements. For example, since the foundation of the International Development Association (IDA), 44 countries have graduated and nine of these graduates have since re-entered IDA […]. Establishing rules for reinstatement should therefore be consistent with the DAC’s reputation for the rigour of its principles, but provide additional flexibility and responsiveness to the evolving needs of countries in the context of the sustainable development goals.28
23.The proposal enjoys overwhelming support from NGOs.29 The Overseas Development Institute (ODI) is also supportive, arguing in its evidence that:
A formal mechanism for adding countries to the DAC’s ODA eligible list when they move from high income to upper middle income status would be beneficial. This particular transition in countries’ income status is not particularly common—nine countries have moved from high income to upper middle income status over the past decade since FY2009—and it would therefore likely not have much impact on existing ODA patterns. There are precedents in other institutions, such as the World Bank, for countries to regain access to concessional assistance.30
24.ODI also pointed out, for practical purposes, that the mechanism and timeframe should be more rapid for reinstating countries than for removing them. ODI said:
Currently, the DAC assess revisions to the list of eligible countries every three years, and then only removes a country after it has crossed the income threshold for three consecutive years, effectively resulting in a four- to six-year wait. However, even a rapid reinstatement mechanism will not address the issue of high income countries requiring immediate humanitarian aid, as changes in official GNI figures are published only the following year.31
25.There was, on the other hand, near-universal opposition from witnesses to our inquiry to more far reaching changes such as allowing all humanitarian assistance to be counted as ODA even if the recipient country is high-income. ONE, in its written evidence, states:
the fact of experience of a humanitarian situation or natural disaster should not, by itself, qualify a country to access ODA. High-income countries are highly likely to have the capacity to deal with natural disasters or catastrophic events using their own domestic resources and, as a general rule, should not be able to access ODA even after catastrophic events. It would fundamentally undermine the principles and purpose of aid if the USA, or Japan for example, could use their aid budgets to finance disaster relief after a hurricane or earthquake at home. Given the costs involved in responding to natural disasters in high-income countries, it could also lead to a significant diversion of resources intended for the poorest countries.32
26.It seems logical that countries and territories whose GNI falls back below the high-income threshold should be re-admitted to ODA eligibility. The lack of a standard and established procedure for re-admission in such circumstances is a gap in otherwise sensible arrangements. The Government should continue to use its influence within the OECD-DAC to ensure that a reverse graduation mechanism is established as soon as possible.
27.We note the near-universal opposition to other, more far reaching proposals such as allowing all humanitarian assistance, irrespective of the economic status of the recipient country or territory, to be counted as ODA. We agree that allowing humanitarian assistance to high-income countries to be counted as ODA would clearly undermine the concept of international assistance. It would also be complicated and plausibly divisive to have to define the size and severity of an ‘ODA-eligible disaster.’ The Government should oppose any proposals which would allow all humanitarian assistance - irrespective of the economic status of the recipient country - to be counted as ODA.
28.The ODA definition does not preclude the UK from providing humanitarian assistance wherever needed, including to fellow high-income countries and territories: it simply prevents the Government from reporting such assistance as ODA. The UK should continue to provide humanitarian assistance where it judges it appropriate to do so, irrespective of the ODA eligibility status of the recipient countries and territories. In particular, the UK should continue to provide whatever assistance is necessary to its Overseas Territories, as required under the International Development Act 2002.
Incorporating qualitative criteria
29.Some of the evidence we received suggests that–in determining ODA eligibility–the OECD should consider vulnerability and resilience as well as GNI. Development Initiatives argues that:
Official aggregate GNI may bear little resemblance to the income of (and security of people living in) countries affected by crisis or catastrophic shocks, and is a crude indicator of a country’s need for international assistance. We believe that other criteria, such as national and sub-national poverty and measures of fragility and vulnerability, should also be considered.33
30.However, one of the benefits of GNI is its inherent simplicity. In her evidence to us Amy Dodd, Director of the UK Aid Network, argued that:
It has the benefit of being simple, straightforward, and very black and white: you are either below or above this.34
31.It is clear that GNI is something of a blunt instrument for determining ODA eligibility. In practice, however, the use of a more nuanced indicator would not change much. With the possible exception of a small number of resource-rich countries with very inequitable distributions of wealth, it is difficult to see which currently ineligible countries would become eligible if a more nuanced indicator were used. Moreover, there is inherent benefit in having a simple and understandable indicator such as GNI. We therefore recommend that the Government support the current GNI-based system: low-income and middle-income countries should remain eligible for ODA, and high-income countries should remain ineligible.
Security-related spending
32.Changes introduced in 2016 permit some additional items of security-related expenditure to be reported as ODA, providing they meet particular criteria:
a)Development or humanitarian aid delivered by military forces;
b)Training of military forces in developing countries on topics including international humanitarian law, democratic control or the protection of women in conflict;
c)Humanitarian aid delivered by donor military forces;
d)15% of donor contributions to UN-mandated and UN-led peacekeeping operations (rather than 7% as previously);
e)Some counter-terrorism projects including education initiatives, support for the rule of law, work with civil society groups and capacity building of security and justice systems.35
33.The Government welcomed the changes in its written evidence:
Peacekeepers can not only help protect civilian populations, but create the conditions to allow economic activity to take place and provide an environment in which parties can work towards sustainable political settlements. […] The test should be whether these activities support Goal 16–and not who undertakes the activities. We should be open to peacekeeping delivering multiple effects simultaneously–building a road may allow ease of movement by peacekeepers but it equally allows ordinary people to access markets and opportunities.36
34.In her evidence to us in January, the Secretary of State suggested that she would like to see a further increase in the ODA coefficient for peacekeeping operations, beyond the current level of 15%. DFID’s Permanent Secretary, Matthew Rycroft, agreed, stating:
Everything is interconnected. When you have a peacekeeping operation, it has more than a 15% impact on poverty eradication and development.37
35.Others are more sceptical, and caution against any further moves in this direction. In its written evidence, ONE states that:
In 2016 the OECD-DAC agreed to amend the rules to widen the range of military and security expenditure that can be counted as ODA. Along with other development NGOs ONE did not support these proposals. We believe that whilst important, these costs should be met by other sources of financing, reserving ODA for activities with a clearer, poverty reduction focus. Considering our opposition on these changes, we would not like for the rules to be relaxed even further. However, given that these changes have already been agreed we do not believe there is a good case for re-opening these rules so soon after the most recent changes were adopted.38
36.We agree with the Government that peacekeeping activities can and do contribute to poverty reduction, and we welcome the recent increase in the proportion of UN peacekeeping operations which can be counted as ODA. However, it is clear that such activities are not entirely focused on poverty reduction - they are also designed to deliver other benefits which are not directly linked to poverty. In view of this, the 15% coefficient seems appropriate. We recommend that the Government oppose any further increase in the proportion of UN peacekeeping operations which can be counted as ODA.
Developing a UK-specific definition
37.The Conservative Party’s 2017 election manifesto stated that:
If [our attempt to change the definition] does not work, we will change the law to allow us to use a better definition of development spending, while continuing to meet our 0.7 per cent target.39
38.However, we are not aware of any work being done in Government on a UK-specific definition.40 The notion of the UK using its own definition has been criticised by a range of organisations, including Development Initiatives and the UK Aid Network. The OECD itself argues that:
Reporting by the UK to the OECD follows agreed DAC reporting rules and would not be affected by any unilateral change of legislation in the UK. […] This could present a reputational risk for the UK and compromise the credibility which the UK currently enjoys as a result of meeting the 0.7% target using the agreed DAC definitions. In its public communication, the OECD would be obliged to signal that the UK definition differs from the DAC definition of ODA. The domestic measure would have little value internationally, and would likely create confusion. It could also be perceived as undermining transparency, for which the UK has been a champion. Questions could be raised by civil society on the legitimacy of such a measure.41
39.In her evidence to us, the Secretary of State said that she would prefer to continue using the DAC definition, but went on to say that:
If I am presented with a stark choice, I will always pipe up and say that the course of action the United Kingdom should take is the one we think is right; the one that will alleviate suffering; the one that will help our friends if they are in trouble.42
40.We believe unilateral action by the UK to develop and use its own ODA definition would be an own goal. The current internationally-recognised definition places no restriction on the activities which the UK can undertake; it merely prevents the UK from reporting certain spending (such as humanitarian assistance in high-income territories) as ODA. The UK’s reputation as a leading development actor stems from its expertise and professionalism, its commitment to multilateralism and the international system and its commitment to, and delivery against, the 0.7% target. All three of these ‘assets’ would be damaged by trying to manipulate the shared understanding of what aid is. The Government should continue to use the internationally-recognised ODA definition even if it fails to secure the changes it is seeking to the current rules.
Benefits of stability
41.Many stress the importance of having a stable ODA definition. In its written evidence, Development Initiatives argues that:
The changes agreed for modernising ODA at the OECD DAC HLM in October 2017 are some of the biggest changes to aid rules in decades and represent the culmination of a process that began in 2012. Given this, we would not recommend the UK tries to achieve further changes to the ODA definition at this time. There would be little appetite for this from other DAC members and UK efforts for further reform may be unproductive.
We do agree that the definition of ODA should not remain static and needs to take into account changing global context. It may therefore be appropriate to agree with other DAC members a periodic review process for 2030 and beyond.43
42.Bond and the UK Aid Network, in their joint submission, make a similar argument:
As many of [the] agreed reforms are relatively new or yet to be finalised there is an argument to allow those changes to ‘bed in’ so that implications and impact are understood before pursuing further reform.
Balancing predictability with the need to meet new or evolving needs could be usefully addressed by systematising ODA reform so there is a regular (5 years for example) process to propose, develop and implement new changes without ending up in a constant round of reform.44
43.Whilst it is important to ensure that the ODA definition remains relevant and up-to-date, continual changes might cause unnecessary confusion. A regular review process would provide greater certainty. The Government should encourage the OECD-DAC to establish a credible and consensus-based process for reviewing the ODA definition at regular intervals, such as every five years, and should oppose any proposals for ad hoc changes in the interim.
22 OECD, ‘DAC List of ODA Recipients,’ accessed 14 May 2018
23 “Lincolnshire fire team to join Japan rescue effort”, BBC News, 12 March 2011
24 “One month on from Hurricane Irma”, DFID press release, 6 October 2017
25 OECD, ‘DAC List of ODA Recipients,’ accessed 14 May 2018
31 Ibid
37 Oral evidence taken on 31 January 2018, HC (2017–19) 726, Q23 [Matthew Rycroft]
39 Conservative and Unionist Party, Forward, Together: Our Plan for a Stronger Britain and a Prosperous Future, 18 May 2017
Published: 5 June 2018