Official Development Assistance (ODA)

April 2019

WHAT IS ODA?
Official development assistance (ODA) is defined by the OECD Development Assistance
Committee (DAC) as government aid that promotes and specifically targets the economic
development and welfare of developing countries. The DAC adopted ODA as the
“gold standard” of foreign aid in 1969 and it remains the main source of financing for
development aid.
ODA flows to countries and territories on the DAC List
of ODA Recipients and to multilateral development WHAT IS NOT ODA?
institutions are:
• Military aid and promotion of donors’
i. Provided by official agencies, including state and security interests
local governments, or by their executive agencies; • Transactions that have a primarily
and commercial objectives e.g. export credits

ii. Concessional (i.e. grants and soft loans) and Check the on-line database on ODA-eligibility:
administered with the promotion of the economic http://oe.cd/oda-eligibility-database
development and welfare of developing countries as
the main objective.
The DAC list of countries eligible to receive ODA is updated every three years and is based on per capita
income: http://oe.cd/dac-list
ODA data is collected, verified and made publicly available by the OECD at http://oe.cd/fsd-data.
OECD statistics are the only source of official, verified and comparable data on aid reported by
30 members of the OECD Development Assistance Committee (DAC) and about 80 other providers of
development co-operation, including other countries, multilateral organisations and private foundations.

ODA 2018 preliminary figures

www.compareyourcountry.org/oda

Official Development Assistance (ODA) | DEVELOPMENT CO-OPERATION DIRECTORATE

THE MODERNISATION OF OFFICIAL DEVELOPMENT ASSISTANCE
In 2012, the DAC launched the modernisation of its statistical system in order to improve its accuracy while reflecting
the changes in the development co-operation sector, such as the growing importance of other providers – non-DAC
providers or philanthropic foundations -, the diversification of financial instruments for development, or the increasing
overlap of development co-operation policy objectives with those of other sectors such as migration and security.
In the process, the DAC took a series of decisions at its High Level Meetings in 2014, 2016 and 2017 with regard to the
measurement of concessional loans to the public sector, private sector instruments, peace and security expenditures,
and in-donor refugee costs.

• Over 2016-2018, a number of clarifications of eligibility rules for peace and security as well as in-donor refugee
costs became effective.

• In 2019, the grant equivalent system became the standard for measuring ODA. Although data on the grant
equivalent measure were collected and published during a transition period from 2016 to 2018, in 2019 it became
the standard. In April 2019, ODA headline figures for 2018 applying this new standard were published for the first
time. Data on actual flows (i.e. disbursements and loan repayments) continue to be collected and published to
ensure transparency.

• Beyond 2019, the DAC will continue to adjust its statistical systems to new realities and needs. Work will continue
to make the reporting of private sector instruments and debt relief consistent with the new grant equivalent method.
Work is also ongoing in relation to the methodology for updating the DAC List of ODA Recipients (e.g. reinstating
countries or territories in case of catastrophic humanitarian crisis) and the methods for measuring the SDG focus of
development co-operation (purpose codes, policy markers) in view of keeping the statistical classifications relevant
and fit-for-purpose with the 2030 Agenda.

2016-2018 2019 2020

Switch to ODA grant
equivalent (reporting on
2018 data)

The new statistical framework:

• measures ODA loans more accurately and credibly, ensuring comparability of data across providers,
• encourages more and better allocation of concessional resources to implement the SDGs,
• promotes greater transparency and heightened accountability, helping to ensure that ODA goes where it is most
needed and has the greatest development impact.
The next sections explain the changes in more details.

2 Official Development Assistance (ODA) | DEVELOPMENT CO-OPERATION DIRECTORATE

CLARIFICATIONS OF ELIGIBILITY RULES
Ambiguities in reporting rules led to inconsistent interpretation and reporting by DAC members on both peace and
security-related expenditures, and on in-donor refugee costs.

Peace and security efforts

In 2016, the DAC agreed on updated rules for the eligibility of peace and security expenditures. This was to better
recognise the marginal, but actual developmental role that military actors sometimes play, notably in conflict
situations, while clearly delineating it from their main peace and security function.
• The changes clarify ambiguities to ensure uniform, consistent statistical reporting, but also to approve
the ODA-eligibility of development-related training for partner country military staff in limited topics.
Since then, the DAC has:
• implemented the updated ODA rules on peace and security in the reporting,
• issued a revised ODA Casebook on Conflict, Peace and Security Activities, and
• complemented the technical review of the ODA coefficient applied to UN peacekeeping operations.
READ MORE:
http://www.oecd.org/dac/HLM_ODAeligibilityPS.pdf
https://one.oecd.org/document/DCD/DAC(2017)22/FINAL/en/pdf
http://www.oecd.org/dac/financing-sustainable-development/development-finance-standards/ODA-
Coefficient-for-UN-Peacekeeping-Operations.pdf

In-donor refugee costs

In 2017, the DAC agreed to clarify the reporting directives for assessing what may be included or not in ODA – and
provide its members with a blue print to use when accounting for the costs of assisting refugees in donor countries.
• There are five clarifications, with supporting explanatory notes:

Underlines that refugee protection is a legal obligation

i) Rationale for counting in-donor costs as ODA and that the provision of assistance to refugees may be
considered a form of humanitarian assistance.
States that categories must be based on international legal
ii) Eligible categories of refugees definitions. Asylum seekers and recognised refugees are
covered.
Reaffirms that beyond 12 months, expenditures are outside
iii) The “12-month rule”
the scope of statistics on international flows.
Explains what cost items may or not be included in
reporting, e.g. temporary sustenance (food, shelter,
iv) Eligibility of specific cost items
training) is eligible but not costs for integrating refugees
into the economy of the donor country.
Emphasises the need for a conservative approach that is
v) Methodology for assessing costs
accurate and transparent.

The changes are aim to improve the consistency, comparability, and transparency of DAC members reporting of
ODA-eligible in-donor refugee costs.
READ MORE:
https://oe.cd/in-donor-refugee-costs

www.oecd.org/dac 3
INTRODUCING THE “GRANT EQUIVALENT”
A fairer method to record ODA
ODA can take the form of (i) grants, where financial resources are provided to developing countries free of interest and
with no provision for repayment, or (ii) soft loans, which have to be repaid with interest, albeit at a significantly lower
rate than if developing countries borrowed from commercial banks.
Until recently, grants and loans were valued in the same way: by recording the flows of cash that were granted, or the
face value of loans that were lent to developing countries, deducting any repayments on the loans. This “cash basis” or
“flow basis” method, has been used to produce ODA headline figures until 2018 (reporting on 2017 ODA spending).
The method was simple, but it did not reflect actual efforts by donor countries: a grant represents a bigger effort than a
loan; and a loan with a very low interest rate and a long repayment period represents a bigger effort than a loan with a
higher interest rate and a short repayment period.
That is why DAC members decided, at their 2014 High-Level Meeting, to introduce a new way of measuring aid loans,
so as to better reflect the actual effort by donor countries –and their taxpayers: only the “grant equivalent” of loans
would now be recorded as ODA. The more generous the loan, the higher the ODA value.1
Instead of recording the actual flows of cash between lender and borrower, the headline measure of ODA is based on
the loans’ “grant equivalents”.
This provides:
• a more realistic comparison of loans and grants
• stronger incentives to use grants and highly concessional loans, which will continue to play a key role in mobilising
resources to support the Sustainable Development Goals (SDGs).

Making grants and loans comparable: calculating the grant element and the
grant equivalent
Money today is worth more than the prospect of the same amount in future. Any comparison of money now and in the
future must take account of the rate at which money loses value. A sum of money in the future can be reduced to its
value today by applying a discount rate. A discount rate is an interest rate applied in reverse: it applies tomorrow’s value
to today’s money. Grant element calculations use discount rates to reduce the expected future reflows from a financial
transaction to the value they would have today. If the value of expected future reflows in today’s money is lower than the
amount extended today, then the difference represents a “gift”. This gift portion is called a grant equivalent if expressed
as a monetary value, and a grant element if expressed as a percentage of the amount now extended.
For example, grants have a grant element of 100% as they are fully provided as “gifts”. By contrast, a loan offered at
market terms has a grant element of 0%. However, this becomes a positive percentage if the lender adds an element of
generosity. The grant element measure of aid provides a more accurate estimate of the donor’s effort
In short, the grant equivalent is an estimate, at today’s value of money, of how much is being given away over the life
of a financial transaction, compared with a transaction at market terms. The grant equivalent is the grant element
multiplied by the amount of money extended.
LEARN MORE:
• https://oe.cd/modernisation-oda
• Introducing the grant equivalent www.youtube.com/watch?v=-O4oFS7O-jg
• Modernised ODA measure: the treatment of loans www.youtube.com/watch?v=eSpxH-3hDJQ
• What is the grant element of a loan www.youtube.com/watch?v=TjI8efef3LQ
• Grant element calculator https://oe.cd/grant-element-calculator

1. At its 2016 High-Level Meeting, the DAC decided also to apply the grant equivalent method to other non-grant instruments such as equities and guarantees.

4 Official Development Assistance (ODA) | DEVELOPMENT CO-OPERATION DIRECTORATE

The question of private sector instruments
At the February 2016 DAC High-Level Meeting, members agreed on the principles to better reflect, in ODA, the
donor effort involved in the use of private-sector instruments. However, despite best efforts by all parties, the
implementation rules to report private-sector instruments in ODA have not yet been agreed, primarily due to
disagreement over the discount rates to be used in calculating the grant-equivalent of loans to private sector
companies (PSI loans), equity investments, mezzanine finance and guarantees.
Therefore, DAC members have agreed on how to report their 2018 private-sector instruments flows in ODA (based on
prior years’ decisions and procedures), by applying either the institutional or instrument approach (until such time as
the details of all decisions on private-sector instruments are agreed):
a) Institutional contributions:
• Any capital contributions to Development Finance Institutions (DFIs) or other private-sector instruments vehicles
made in 2018 is included in ODA at their face value. If necessary, i.e. if the institution is active also in non ODA-
eligible countries and/or activity areas, the share of ODA-eligible activities in the institution’s total portfolio is
estimated, to establish a coefficient for ODA reporting.
• Any reflows (including profits) from PSI vehicles to the government are counted as negative ODA.
b) Individual loans to private sector entities in developing countries:
• Loans committed or disbursed in 2018 are reported as ODA on a cash-flow basis (provided they have a grant
element of at least 25% calculated using a discount rate of 10%).
• Reflows from previous years’ PSI count as negative ODA (provided that the underlying transactions have initially
been counted as ODA).
c) Individual equity investments to private sector entities in developing countries continue to be reported on a cash-
flow basis:
• Positive ODA is be recorded at the time of investment and the proceeds of sales are reportable as negative ODA
applying a cap on reflows corresponding to the original investment. To be ODA-eligible, equities need to comply
with the ODA definition i.e. have the economic development and welfare of developing countries as their primary
purpose and be in line with the ODA rules.
• Contributions to investment funds may be ODA-eligible if in accordance with the existing Directives.
d) Due to the lack of agreement on the details of accounting for ODA eligibility of mezzanine finance and guarantees,
such instruments are not be included in ODA, except to the extent that guarantees are invoked and payments made in
which case existing processes specify these payments are measured on a cash flow basis.
Work on the implementation details is ongoing and the DAC is committed to reach a conclusion by consensus on
this topic.

The question of debt relief

At the 2014 High-Level Meeting it was agreed that changing the ODA measurement system from net flows to a
risk-adjusted grant equivalent system would also change the basis on which debt relief of ODA loans was reported.
It concluded that the existing rules for reporting debt relief should expire with the reporting of 2017 flows, and be
replaced by new rules, in time for the reporting of 2018 data when the new grant equivalent system became the
standard.
However, despite efforts by all parties, the implementation rules to report debt relief have not yet been agreed. Work
on the implementation details is ongoing and the DAC is committed to reach a consensus on this topic, noting that no
major debt reorganisation occurred in 2018, and none is foreseen by the Paris Club for the coming months.

www.oecd.org/dac 5
 DEFINITION OF ODA
The ODA grant equivalent is a measure of donor effort. Grants, loans and other flows entering the calculation of
the ODA grant equivalent measure are referred to as ODA flows (see notes 1 and 2).
ODA flows (see note 3) are defined as those flows to countries and territories on the DAC List of ODA Recipients
and to multilateral development institutions that are:
i. provided by official agencies, including state and local governments, or by their executive agencies; and
ii. each transaction of which:
a) is administered with the promotion of the economic development and welfare of developing countries as its
main objective; and
b) is concessional in character. In DAC statistics, this implies a grant element of at least (see note 4):
• 45% in the case of bilateral loans to the official sector of LDCs and other LICs (calculated at a rate of
discount of 9 per cent).
• 15% in the case of bilateral loans to the official sector of LMICs (calculated at a rate of discount of 7 per
cent).
• 10% in the case of bilateral loans to the official sector of UMICs (calculated at a rate of discount of 6 per
cent).
• 10% in the case of loans to multilateral institutions (see note 5) (calculated at a rate of discount of 5 per cent
for global institutions and multilateral development banks, and 6 per cent for other organisations, including
sub-regional organisations)
Loans whose terms are not consistent with the IMF Debt Limits Policy and/or the World Bank’s Non-Concessional
Borrowing Policy are not reportable as ODA (see notes 6 and 7).
ODA grant equivalent measure
The ODA grant equivalent measure is calculated for ODA flows, as defined above. For loans to the official sector
which pass the tests for ODA scoring [conditions i) and ii) above], the grant equivalent recorded as ODA is
obtained by multiplying the annual disbursements on the loan by the loan’s grant element as calculated at the time
of the commitment (see notes 8 and 9).
1. Note on the status of DAC discussions: The HLM agreed that the headline ODA measure would no longer record the cash flows of concessional loans
but their grant equivalents. For the sake of simplicity, and pending finalisation of the overall reform of the DAC statistical framework, the term “ODA
flows” is used throughout the revised Directives to refer to flows the grant equivalent of which is counted in ODA. Similarly, the term “ODA loans”
refers to loans the grant equivalent of which is counted in ODA.--
2. The formulation of this paragraph will be reviewed in light of the outcomes of the HLM 2016.
3. Note on the status of DAC discussions: footnote 4 will be reviewed as part of the updating of instructions on reporting on debt relief.
4. Except that capitalised interest included in reschedulings of ODA loans is recorded as ODA, regardless of the grant element of the rescheduling.
5. This includes both loans in the form of core contributions to multilateral institutions (classified as multilateral ODA), loans channelled through
multilateral institutions (classified as bilateral ODA), and loans to trust funds administered by these institutions.
6. Note on the status of DAC discussions: The definition of concessionality remains to be clarified for other types of loans [e.g. loans to the private
sector], and other non-grant instruments (e.g. equity). Pending clarification, the criterion “is concessional in character and conveys a grant element
of at least 25 per cent (calculated at a rate of discount of 10 per cent)” remains in force for these instruments.
7. Discount rates consist of a base factor of 5%, which is consistent with the discount rate that IMF used in 2014 for calculating IMF grant element, and
an adjustment factor of 1% for UMICs, 2% for LMICs and 4% for LDCs and other LICs. There is no adjustment factor for loans to global institutions
and multilateral development banks, and an adjustment factor of 1 per cent for loans to other multilateral organisations, including sub-regional
organisations. The DAC will regularly assess the need for adjusting discount rates, in particular following any change to the IMF rate.
8. Note on the status of DAC discussions: The method for calculating ODA grant equivalent has so far been defined for bilateral loans to the official
sector and for loans to multilaterals, not for loans to the private sector. The approach for measuring the donor effort in the use of private-sector
instruments has not been agreed yet and is therefore not reflected in this interim version of the Directives.
9. The formulation of this paragraph will be reviewed in light of the outcomes of the HLM 2016.

6 Official Development Assistance (ODA) | DEVELOPMENT CO-OPERATION DIRECTORATE

The total ODA figure in 2019 on 2018 data
As explained above, members have yet to agree on the method for calculating the grant equivalent of private sector
instruments and debt relief. Total ODA and the ODA/GNI ratio on 2018 data are calculated by summing up grant
equivalents for sovereign and multilateral loans, and net disbursements for private sector instruments and debt relief.
As these elements only represent 1.6% of total ODA in 2018, this was deemed an acceptable practical solution.

BEYOND ODA: TOTAL OFFICIAL SUPPORT FOR SUSTAINABLE

DEVELOPMENT (TOSSD)
The measurement, total official support for sustainable development (TOSSD), is currently being developed to promote
greater transparency over the full array of officially supported development finance provided in support of the 2030
Agenda for Sustainable Development – including resources provided through South-South co-operation, triangular co-
operation, multilateral institutions and emerging and traditional donors.
TOSSD aims to complement ODA by increasing transparency and monitoring important new trends that are shaping
the international development finance landscape. Work on TOSSD is carried out in an open, inclusive and transparent
manner.
READ MORE:
https://oe.cd/tossd

MORE RESOURCES:
https://oe.cd/official-development-assistance

www.oecd.org/dac 7
Official Development Assistance (ODA) | DEVELOPMENT CO-OPERATION DIRECTORATE