European governments fail to fulfil development promises as aid is increasingly delivered as profit-making loans
The EU and some of its largest member states are increasingly reporting profit-making loans as aid.
- Developing countries face interest repayments of almost 600 million Euros a year, of which 90 per cent came from EU institutions, France and Germany
- Eurodad report calls for urgent review to end lax reporting criteria which could inflate aid by more than 50 billion euros
A new report by the European Network on Debt and Development (Eurodad) shows how countries such as France and Germany, and multilateral development banks (MDBs), are issuing loans to developing countries at market rates which qualify as aid under ambiguous and outdated rules. In 2012 alone, developing countries paid 590 million euros in interest on these loans to Europe.
The report, entitled A matter of high interest: Assessing how loans are reported as development aid,
has been published as donor governments are about to meet in Paris to review the definition and reporting criteria of development aid. They are being convened by the OECD’s Development Assistance Committee (OECD DAC) - the body responsible for collecting aid statistics.
Jeroen Kwakkenbos, Policy and Advocacy Officer at Eurodad, said: “Some European governments are interpreting vague aid rules as a licence to scale up profit-making loans under the guise of development cooperation. Rich countries should not be incentivised to profit from development aid, but the current reporting system does just that.”
As long as loan conditions are met, they can count towards the commitment made by donors to spend 0.7 per cent of their gross national income as aid, or Official Development Assistance (ODA). This is despite the fact that the poorest countries spend large amounts of money repaying loans, reducing resources for health, education and vital services for desperately poor people.
The report recommends that the OECD-DAC review has the following outcomes:
- Civil society and partner country governments are included in ongoing discussions.
- Interest repayments are deducted from aid figures.
- Only the grant element of a loan is reported as aid.
- Steps are taken to ensure that the main incentive of aid is poverty eradication.
- The 10 percent reference rate is replaced with a more relevant benchmark.
- The rules should specify that loans include a budgetary effort in the form of an official subsidy to qualify as ‘concessional’ in character.
- The OECD DAC formal meeting is scheduled for January 27th. A senior level meeting will take place on March 3rd when recommendations will be presented on defining concessionality.
For more information, or to request an interview, please contact Julia Ravenscroft, Communications Manager at Eurodad, on + 32 2 893 0854 or at: email@example.com. Notes to the editor:
The current rules for reporting aid as loans are confusing and open to abuse as:
- All loans that include a ‘grant element’ of at least 25 per cent – whether it is 26 per cent or 99 per cent – are fully counted in aid figures.
- The grant element is based on a 10 percent reference determined in the early 1970s, which no longer reflects reality and allows donors to report money making loans as aid.
- Interest repayments on loans are not currently deducted from gross aid figures which means more money actually leaves the county than goes initially goes in.
Eurodad (the European Network on Debt and Development) is a network of 48 non-governmental organisations from 19 European countries working on issues related to debt, development finance and poverty reduction. Since it was founded in 1989, Eurodad has been pushing for development policies that support pro-poor and democratically-defined sustainable development strategies. Eurodad works on the promotion of responsible finance principles. See Eurodad’s responsible finance charter.