6.6 Net financial flows from Development Assistance Committee countries
See Table 6.6 hereCommentary
About the data
Definitions
Data sources
Private flows overtake official
The high-income countries of the Organization for Economic Cooperation and Development (OECD) are the principal source of external finance for developing countries. Until recently a large share of these financial resources came in the form of grants and bilateral loans from one government to another. Now private resources—particularly direct and portfolio investment—have far surpassed those from official sources. This table gives an overview of the flow of financial resources from members of the OECD Development Assistance Committee (DAC) to developing countries.
DAC exists to help its member countries coordinate their development assistance policies and to encourage the expansion and improve the effectiveness of the aggregate resources made available to developing and transition economies. In this capacity it monitors the flow of all financial resources, but its principal concern is official development assistance (ODA). DAC has three criteria for ODA:
It is undertaken by the official sector. It promotes economic development or welfare as a main objective. It is provided on concessional terms, with a grant element of at least 25 percent on loans.
This definition excludes nonconcessional flows from official creditors and assistance for military purposes. It includes capital projects food aid, emergency relief, peacekeeping efforts, and technical cooperation. Also included are contributions to multilateral institutions, such as the United Nations and its specialized agencies and concessional funding to the multilateral development banks.
DAC maintains a list of countries and territories that are aid recipients. Part I of the list comprises countries and territories considered collectively by DAC members to be eligible for ODA. Part II of the list, created after the collapse of the Soviet Union, monitors the flow of concessional assistance to transition economies, that were not considered eligible for ODA but that nevertheless receive ODA-like flows. Under a procedure agreed to in 1993, countries with relatively higher incomes are moving from part I to part II status.
The data here measure the flow of resources from DAC members to countries on the DAC list of aid recipients and to multilateral institutions such as the United Nations, the World Bank, and the regional development banks. The data were compiled from replies by DAC member countries to questionnaires issued by the DAC Secretariat. Net flows of resources are defined as gross disbursements of grants and loans minus repayments on earlier loans.
Because they are based on donor country reports, the data do not provide a complete picture of the resources received by developing countries, for three reasons. First, flows from DAC members are only part of the aggregate resource flows to developing countries. Second, the data that record contributions to multilateral institutions measure the flow of resources made available to them by DAC countries, not the flow of resources from these institutions to developing countries. Third, because some of the countries and territories on the DAC recipient list are normally classified as high income, the reported flows may overstate the resources available to low- and middle-income countries. However, high-income countries receive only a small fraction of all development assistance.
• Official development assistance (ODA) comprises grants and loans that meet the DAC definition of ODA and are made to countries and territories in part I of the DAC list of aid recipients.
• Official aid comprises grants and ODA-like loans to countries and territories in part II of the DAC list of aid recipients.
• Bilateral grants are transfers in money or in kind for which no repayment is required.
• Bilateral loans are loans extended by governments or official agencies that have a grant element of at least 25 percent and for which repayment is required in convertible currencies or in kind.
• Contributions to multilateral agencies are concessional funding received by multilateral institutions from DAC countries in the form of grants or capital subscriptions. A contribution by a DAC member country is defined as multilateral if it is pooled with other contributions and disbursed at the discretion of the multilateral agency.
• Other official flows are transactions by the official sector whose main objective is other than development or whose grant element is less than 25 percent, such as official export credits, official sector equity and portfolio investment, and debt reorganization undertaken by the official sector on nonconcessional terms.
• Private flows consist of flows at market terms financed from private sector resources. They include changes in holdings of private long-term assets by residents of the reporting country and private grants by nongovernmental organizations, net of subsidies from the official sector. l Foreign direct investment is investment by residents of DAC countries to acquire a lasting management interest (at least 10 percent of voting stock) in an enterprise operating in the recipient country. The data in the table reflect the changes in net worth of subsidiaries in recipient countries whose parent company is in the DAC source country.
• Bilateral portfolio investment covers bank lending and the purchase of bonds, shares, and real estate by residents of DAC countries in recipient countries.
• Multilateral portfolio investment records the transactions of private banks and the nonbank sector in DAC countries in the securities issued by multilateral institutions.
• Private export credits are loans that are extended to recipient countries by the private sector in DAC countries for the purpose of promoting trade and are supported by an official guarantee.
• Net grants by NGOs are grants by nongovernmental organizations, net of subsidies from the official sector.
• Total net flows comprise ODA or official aid flows, other official flows, private flows, and net grants by NGOs.
Data on financial flows are compiled by DAC and published in its annual statistical report, Geographical Distribution of Financial Flows to Aid Recipients, and the DAC chairman’s annual report, Development Co-operation. The OECD also makes its data available on diskette and magnetic tape and the Internet.
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