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Development financing – pump up the volume!

Spain has increased its funding significantly and redirected spending towards multilaterals and social sectors.

2005 was the year of development. The UN summit MDG+5, the G8 summit in Scotland and the related public mobilization ‘to make poverty history’ reaffirmed the goal of dedicating 0.7 of GDP to development cooperation. Spanish civil society joined the movement, calling on its government to increase the volume of aid.1 And the current government has done just that. Indeed, for three consecutive years Spain has increased its ODA funds.

Table: Net aid volume as percentage of GNI (Source: 2001 – 2005 PACI seg 2005; 2006 OECD)

2001 2002 2003 2004 2005 2006
0.30 0.26 0.23 0.24 0.27 0.32

Although the spending target of 0.33 in 2006 was just missed, the increase has been remarkable. Spain even represented an international exception in 2006, when a significant number of donors did not increase their development spending as compared to 2005 and thus, as reported by the OECD, lost their way on the roadmap towards the 0.7 goal in 2015. However, compared with average spending of 0.30 percent for all OECD countries and 0.43 for the EU-15, a significant process of catch-up remains. On the positive side, Spain is one of very few countries to have devised a specific roadmap with spending targets in terms of percentage of GDP.2 This will make it easier to detect any backsliding. For now, underachievement as regards spending plans has been continuous.

Table: Spanish development cooperation commitments (Source EC COM (2007) 164, p. 7)

2007 2008 2009 2010
0.42 0.50 0.56 0.62

This increase in aid volume has to be specified on three dimensions: how much goes to social sectors? How much goes to the poorest countries? And how much is genuine aid?

  1. Social Sectors: At the Social Development Summit 1995 in Copenhagen, donors and recipient states committed themselves to spending 20 percent of, respectively, ODA or the state budget on basic social services. This is the so-called 20/20 initiative. Spain, along with many other donors, had failed to accomplish this goal until 2005, when it arguably reached the mark for the first time according to a recent document from SECI.3 It is one of the few countries in which this commitment is still reported on and politically referred to. It has been cited in the Master Plan, and recently reconfirmed as one of the eight goals of the Annual Plan 2007.
  2. Poorest countries: Spain, with its traditional focus on Latin American and Northern African Countries, scores poorly when it comes to the share given to the least developed countries, defined as those that do not pass a certain level of GDP per capita (for example, Haiti is the only American country that fulfils this criterion). In recent years, the percentage of aid dedicated to the poorest countries has increased constantly (up to 24 percent in 2005). The largest share, however, is still being allocated to middle-income countries (nearly 60 percent).4 Although many other donors have called for development cooperation to be focused on least developed countries, poverty and inequalities in middle-income countries persist. Spain has been leading efforts on developing a strategy to work effectively in these countries.
  3. Real Aid: Criticism of alleged inflation in reported aid figures has been increasing. In particular, it has been argued that debt relief should be counted as additional to ODA, whereas it is currently counted as ODA according to the classification system of the OECD/DAC. Whereas debt is a significant burden on developing countries budgets, and should be condoned, the call is for “fresh money” beyond the cancellation of debts. But questions are also being raised over whether other items such as scholarships to foreign students, refugee assistance in the donor country and certain types of technical assistance should figure as ODA. A recent report by CONCORD, a confederation of European NGOs, asserts that the ‘real aid’ of Spain in 2006 is 0.27 percent rather than the reported 0.32 percent. The share of debt cancellation in 2005 was a fifth of all ODA. A further concern is the tying of aid – meaning the obligation to buy Spanish products or services with this money – which is still an important part of Spanish development cooperation (although rapidly decreasing): the ratio of tied aid to total bilateral aid in 2005 was 14 percent. The Centre for Global Development reports that 32 percent of all aid is tied or partially tied.5

Apart from these specific aspects of targeting, the increased volume of aid can be itemized according to instruments and disbursement channels. The main trends are described below: a greater share for the agency, more funds for multilaterals, a very cautious farewell to project finance. But after the enthusiastic declarations of the Master Plan, the shift in numbers is rather slow.

  • Within the traditionally fragmented system of development cooperation actors in Spain, the Spanish Agency for Cooperation implements a growing share of all ODA.
    Table: Share of all ODA implemented by AECI (data from DGPOLDE), in percentage terms
    2001 2002 2003 2004 2005 2006
    19 22 23 22 23 28
  • Spain is increasing funding to multilateral bodies. This is one way out of the aid disbursement dilemma, while also reflecting a conviction in effective multilateralism. This will be treated below in more detail.
    Spanish Multilateral Contributions – as share of total ODA in percentage terms 6
      2003 2004 2005 2006 2007
    EU 26.8 27.1 26.0 12.3 16.2
    IFI 10.0 14.1 10.1 10.6 12.4
    NFIO 4.5 2.5 2.2 12.2 23.9
    Total 41.3 43.7 45.1 47.4 39.7
  • In terms of bilateral cooperation, there is a range of possible channels through which aid can be disbursed. Principally these are projects (in which NGO financing is included), programmes or direct budget support. Internationally, the current trend, particularly in highly aid-dependent countries, is towards budget support. The reasoning is that project aid places a heavy burden on the administration of partner countries and impedes the development of domestic capacities and institutions. Spain has taken on the challenge, and refers to this type of aid under the heading of “new instruments”. A unit in the technical office of the agency has been created, and has cautiously implemented 0.9 percent of total ODA under this heading in 2005.7

The big issue now is how to handle this tremendous increase in aid. The European Commission has called for national plans to strengthen capacity to implement scaled-up ODA. This would both publicly document the commitment, and structure responses to the technical difficulties so as to disburse more funds with nearly the same administrative structure. No such plan has yet been prepared by Spain.8