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What is the role of ODA in tackling the corona crisis?

Added 06 Apr 2020

The world is facing an unprecedented crisis. As COVID-19 spreads  across the globe it threatens to disproportionately hit developing countries. COVID-19 does not only threaten  people in developing countries with a health crisis, it also risks plunging two-thirds of the world’s population living in developing countries outside China into a prolonged situation of deepened economic and social vulnerability and poverty. As international institutions and CSOs are putting forward policy responses to these multiple crises, this blog explores the role of official development assistance to deal with ‘the worst crisis since the 2nd World War’, according to UN Secretary General Antonio Guterres. 

According to the World Health Organisation, at least half of the world’s 7.6 billion people cannot access the essential health services they need. This is most prevalent  in the poorest countries, where healthcare demand is to outstrip supply by 25 times, causing already seriously underfunded health systems risk to collapse completely. Over 2 billion people, mostly in developing countries, are already suffering from other infectious diseases such as malaria, tuberculosis and HIV. Citizens in developing countries, in particularly women, will be hit hard by the virus and the consequences of the economic and social difficulties it is causing.

As a first and immediate response to the ongoing health crisis, donors need to focus on supporting actors – including NGOs – already at the frontline of providing emergency healthcare and strengthening public health systems to ensure access for all. This means prioritising direct funding through budget and public sector support and other direct transfers to health systems and affected countries’ national response plans, including facilitating the purchase of urgent medical equipment such as ventilators, and making sure they reach the countries most in need. A second immediate priority is supporting social protection programs and safety nets to make sure the most basic rights of vulnerable people are respected when their livelihoods are undermined by preventive measures to contain further spread of the virus. This in particular targets women, who are more often active in heavily affected sectors and are facing additional care burdens.

Since the virus began spreading beyond China, developing countries have taken an enormous hit in terms of record capital outflows, tightened financial conditions, currency depreciations and drops in export earnings, tourism and remittances. UNDP expects developing countries will lose out on over 220 billion USD of income, while the Institute of International Finance – a financial sector lobby group – reports unprecedented outflows from emerging economies. A Eurodad analysis shows that without a step up in grant flows at least 45 low income countries will need over 90 billion dollars in emergency financing in 2020 alone, just to keep their head above water. Meanwhile, UNCTAD has put the ‘financing gap’ for developing countries to stay at least somewhat on track to reach the Sustainable Development Goals at a staggering 2 to 3 trillion dollars over the next 2 years. As the poorest and most vulnerable countries are lacking the monetary, fiscal and administrative capacity to respond adequately, the consequences of a combined health emergency and global recession will be catastrophic.

Similarly, donor countries are affected heavily by COVID-19 and are prioritising domestic measures to cope with the crisis. G7 economies have taken or have announced measures amounting to over 3 trillion USD worth of fiscal and monetary stimulus to support companies, bank lending and demand through expanding existing social safety nets. As a response to donors' domestic priorities, the Chair of the OECD’s Development Assistance Committee (OECD-DAC) has called upon the members to ‘protect ODA budgets’.

As many developing countries lack the resources and capacities to adopt measures similar to those of developed countries, donors need to be ambitious and adopt a ‘whatever it takes’ approach in responding to this global health emergency. Such an approach requires donors to scale up ODA contributions – preferably in the form of grants - to finally meet the long standing commitment of 0.7% of GNI target and respond to the UN’s call for a Marshall Plan including promised but never delivered ODA. Given the scale of the global emergency, ODA alone can not cover all needs, and topping up additional development finance is essential. CSO’s, including Eurodad, have been calling for debt relief supported with fresh, additional resources and covering private creditors, as well to avoid freed up resources being diverted to pay off debt rather than being prioritised to tackle the crisis. 

Increased ambition in terms of the volume of available resources will of course not be sufficient. Donors will also need to reconsider their priorities in terms of where and how that money should be spent. Donor funding in the health sector has been scaled back over the last years, while only a third of real ODA – ODA minus spending for hosting refugees and students from developing countries - is immediately addressing conditions affecting poverty. To reverse this trend, donors should reconsider their current focus on using ODA to crowd-in private finance in the productive sectors and focus on ODA’s added value to strengthen the provision of public services and support where it is most needed. Similarly, the share of loans in ODA for the most vulnerable countries has been increasing steadily over the past years, while the level of concessionality, the part of those loans that have been given at favorable conditions,  has been decreasing. This trend should be reversed urgently if we want to avoid the efforts supporting developing countries to strengthen health systems is undermined by public resources being shifted to creditors.

As the main convening forum for bilateral donors, the OECD-DAC has the responsibility to step up its game. Now is the time to call upon members to raise ambition at the highest political level. ODA is only one, albeit critical, part of a much needed systemic response to the current crisis that needs to be coordinated at the UN level where all countries can participate on equal footing. Until then, nothing should stop the donor community engaging in that discussion wholeheartedly and rethink about the way aid is distributed,  so that the most vulnerable will never again have to face a crisis of this magnitude unprepared.