ODA MODERNISATION - PRIVATE SECTOR INSTRUMENTS TUAC, 8 April 2019 Valérie Gaveau OECD Development Co-operation Directorate

Outline of the presentation 1 WHY MODERNISE ODA AND THE DAC STATISTICAL FRAMEWORK? 2 PRIVATE SECTOR INSTRUMENTS - OVERVIEW 3 PRIVATE SECTOR INSTRUMENTS - DETAILS

1 The DAC statistical system should promote: WHY MODERNISE ODA AND THE DAC STATISTICAL FRAMEWORK? Ultimate goal of modernisation: maximise resources available for development The DAC statistical system should promote: Maximisation of resources for development, their smart allocation and catalytic use. International standards for measuring & monitoring of development finance. Transparency and accountability of development finance. The DAC has embarked on a process of modernising its statistical system in response to the new development finance 2030 agenda. The intention is to make the OECD/DAC statistical system fit for purpose so that it can reflect: broadening of the global development agenda (SDGs); changing development financing landscape (new actors, new instruments). increased diversity among developing countries. Providing the right incentives through a statistical system is key: statistical concepts and measurements are not purely neutral devices. They can introduce distorsions or create incentives for a good allocation of resources and use of the right instruments. This is why our modernisation agenda is being shaped in a view to provide the right incentives to maximise the overall resource envelope available for sustainable development (e.g. encourage the use of market-like instruments when appropriate). Our modernisation agenda also aim to promote international standards for measuring and monitoring of development finance And most importantly we want to continue to promote transparency and accountability of development finance The HLM 2012 launched the modernisation process, and important decisions have been taken both at the 2014 and 2016 HLM. ‌[Other language: The DAC statistical system is being modernised to better reflect the new global development landscape. The new ODA measure is part of this modernisation and will help to ensure that the right incentive frameworks, and financing and investment tools, are in place to help all countries achieve a successful financing for development strategy and realise the ambitious and transformative post-2015 Sustainable Development Goals (SDGs).]

OVERVIEW OF THE MODERNISATION ODA MODERNISATION - Concessional loans - Private sector instruments - Peace and security - In-donor costs (refugees) TOSSD TOTAL OFFICIAL SUPPORT FOR SUSTAINABLE DEVELOPMENT CROSS-CUTTING ISSUES TAXONOMY OF FINANCIAL INSTRUMENTS This slide presents an overview of the modernisation. It consists in two main workstreams: Modernisation of ODA itself addressing 4 main aspects: A revised method of recording sovereign loans An improved representation of the role of PSI while offering the right incentives for the use of these instruments Clarifying the eligibility of peace and security efforts In addition, work to streamline the reporting of in-donor refugee costs. 2. The second main block of the modernisation relates to TOSSD and you have learnt all about that concept in the previous session. Then, there are cross-cutting issues in the modernisation process: The taxonomy of financial instruments is a key element to better track and reflect development finance operations in the system The data collection on amounts mobilised from the private sector is also a major achievement in DAC statistics which will be discussed in depth later today. => We concentrate in this presentation on ODA modernisation and will quickly alos touch upon the taxonomy of financial instruments AMOUNTS MOBILISED FROM THE PRIVATE SECTOR

OVERVIEW OF THE MODERNISATION ODA MODERNISATION - Concessional loans - Private sector instruments - Peace and security - Refugees TOSSD TOTAL OFFICIAL SUPPORT FOR SUSTAINABLE DEVELOPMENT CROSS-CUTTING ISSUES TAXONOMY OF FINANCIAL INSTRUMENTS This slide presents an overview of the modernisation. It consists in two main workstreams: Modernisation of ODA itself addressing 4 main aspects: A revised method of recording sovereign loans An improved representation of the role of PSI while offering the right incentives for the use of these instruments Clarifying the eligibility of peace and security efforts In addition, work to streamline the reporting of in-donor refugee costs. 2. The second main block of the modernisation relates to TOSSD and you have learnt all about that concept in the previous session. Then, there are cross-cutting issues in the modernisation process: The taxonomy of financial instruments is a key element to better track and reflect development finance operations in the system The data collection on amounts mobilised from the private sector is also a major achievement in DAC statistics which will be discussed in depth later today. => We concentrate in this presentation on ODA modernisation and will quickly alos touch upon the taxonomy of financial instruments AMOUNTS MOBILISED FROM THE PRIVATE SECTOR

Outline of the presentation 1 WHY MODERNISE ODA AND THE DAC STATISTICAL FRAMEWORK? 2 PRIVATE SECTOR INSTRUMENTS - OVERVIEW 3 PRIVATE SECTOR INSTRUMENTS - DETAILS

2 PRIVATE SECTOR INSTRUMENTS - OVERVIEW HLM Feb. 2016 Sep. 2018 DAC 15 principles agreed for ODA modernisation of PSI Launch of a high-level political process. DAC meetings & negotiations to discuss possible compromise. DAC/ECG Task Force mandated to adjust the proposal. No work on PSI. HLM Feb. 2016 DAC committed to reach a conclusion by consensus on this topic. Sep. 2018 DAC Dec. 2018 HLM Dec. 2014 SLM Oct. 2016 DAC July 2017 HLM Oct. 2017 No agreement on the package proposal. Concern raised by the Export Credit Group (ECG) community that the proposal could blur the line between developmental PSI and commercial operations. DAC/ECG Task force: developed proposals on ODA calculation, qualitative safeguards and transparency provisions. Agreement on provisional reporting arrangements. Mandate “We agree to urgently undertake work to reflect in ODA the effort of the official sector in catalysing private sector investment in effective development.” No agreement on the package proposal. Institutional approach is legitimised. No agreement on the implementation details of the 2016 HLM principles. Concerns raised by the Export Credit Group (ECG) community.

Outline of the presentation 1 WHY MODERNISE ODA AND THE DAC STATISTICAL FRAMEWORK? 2 PRIVATE SECTOR INSTRUMENTS - OVERVIEW 3 PRIVATE SECTOR INSTRUMENTS - DETAILS

3 2014 High Level Meeting agreement: PRIVATE-SECTOR INSTRUMENTS - DETAILS 2014 High Level Meeting agreement: New measurement system where only the grant equivalent of loans is counted in ODA. The grant equivalent becomes the standard for measuring ODA in 2019 on 2018 data. Mandate to work on private-sector instruments. 2016 High Level Meeting agreement: Decision to reflect in ODA the effort of the official sector in providing private sector instruments (15 principles). Objective: set incentives (remove existing disincentives) for the use of PSI in development co-operation and strengthen the private sector in developing countries. Two approaches for reporting – institutional or instrument. Implementation started in 2016 for loans to the official sector and loans to multilateral institutions: transition period of three years: 2015-2017 The grant equivalent becomes the standard for measuring ODA in 2019 on 2018 data. “We agree to urgently undertake work to reflect in ODA the effort of the official sector in catalysing private sector investment in effective development.” PSI flows are not recorded as ODA flows, but as TOSSD. Donor effort in using PSI is recorded as ODA based on grant equivalents. Transparency provisions and rules on data disclosure, safeguards and disciplines.

Institutional approach 3 PRIVATE-SECTOR INSTRUMENTS - DETAILS Two approaches for reporting – institutional or instrument Outflows Private enterprise or institution in partner countries Provider governments DFIs or other PSI vehicles Inflows Loans Guarantees Equity The private sector is fundamentally important in driving growth, creating jobs, generating wealth and increasing public revenues through taxation. Shifting to another order of magnitude in financing sustainable development – from mobilising billions to trillions – calls for redoubled efforts to engage the private sector in development. Over the past two years, the DAC has undertaken work to modernise its statistical system to better capture in ODA the costs of risks undertaken by the development assistance community in deploying private sector instruments. The decision at the HLM relies on xv principles. First principle is to count the effort in ODA, and record the flows in TOSSD The decision aims at incentivizing the use of PSI and encouraging providers’ support to the private sector in developing countries. There are two possible approaches for calculating ODA: either at the point of tranfers of funds to a DFI (institutional approach) or for each PSI between the DFI and the private enterprise in the partner country (instrument specific). Institutional approach Instrument approach

3 PRIVATE-SECTOR INSTRUMENTS - DETAILS Provisional reporting arrangements for reporting on PSI, as agreed in December 2018 Pending agreement on the calculation of the grant equivalent for PSI. Based on prior years’ decisions and procedures. Applying either the so called institutional or instrument approach, counted on a cash-flow basis. With the institutional approach, contributions to Development Finance Institutions and other PSI vehicles may be counted at face value. Any reflows (including profits) from PSI vehicles to the government are counted as negative ODA. With the instrument approach, loans and equities made directly to private sector entities shall be counted on a cash-flow basis.

3 PRIVATE-SECTOR INSTRUMENTS - DETAILS Calculation of 2018 ODA Grant equivalents (grants and grant equivalents for official and multilateral loans) and net disbursements for PSI. This is not ideal as it affects the quality of the measure, but as PSI only represent 1.5% of ODA, this was deemed an acceptable practical solution. The provisional reporting arrangements still represent a positive development in the short term: they enforce some of the safeguards embedded in the principles agreed in 2016, in particular transparent reporting at the level of activities which will allow for public scrutiny of the data. Next steps The DAC is committed to reach a conclusion by consensus on this topic, and to make the reporting of private sector instruments consistent with the new grant equivalent method. ODA headline figures published on a grant equivalent basis starting in 2019, i.e. 2018 ODA data.

Thank you! Modernisation of the DAC statistical system: http://www.oecd.org/dac/financing-sustainable-development/development-finance-standards/modernisation-dac-statistical-system.htm HLM agreement in 2014: http://www.oecd.org/dac/OECD%20DAC%20HLM%20Communique.PDF HLM agreement in February 2016: http://www.oecd.org/dac/DAC-HLM-Communique-2016.pdf Provisional reporting arrangements for PSI: https://one.oecd.org/document/DCD/DAC/STAT(2018)9/ADD3/FINAL/en/pdf