Beyond 0.7%: measuring ODA effectiveness

A recent Organisation for Economic Co-operation and Development (OECD) press release stated that the organization’s Development Assistance Committee (DAC) substantially increased official development assistance (ODA) in 2023. ODA grew by 1.8% in real terms from 2022, reaching a new record of USD 223.7 billion. This new level of ODA in part reflects donors’ support to Ukraine, Gaza, and the West Bank during their respective humanitarian crises. 

Despite these efforts, only five DAC members (Denmark, Germany, Luxembourg, Norway, and Sweden) spent at least 0.7% of their gross national income (GNI) on ODA – a goal set by the UN General Assembly since 1970. Collectively, DAC countries’ contributions to ODA amounted to just 0.37% of GNI in 2023.

The challenges of assessing aid effectiveness under the SDG perspective

While contributions to ODA are indicative of donor countries’ commitment to sustaining international assistance, their impact (if any) is consistently missing from headlines about aid flows on recipient countries. A focus on results constitutes one of the four core principles for effective development cooperation, originally established through a series of High Level Fora held by the OECD between 2003 and 2011. (The other principles include country ownership, inclusive partnerships, and transparency and mutual accountability.)

Despite their implementation challenges, the effectiveness agenda and its principles are considered best practices in development engagement among officials who manage ODA (see Calleja and Cichocka’s 2022 working paper for the United Nations University World Institute for Development).

Focusing on results implies leveraging quantifiable outcomes to guide development cooperation. Quantifying aid outcomes involves measurement and data challenges that researchers, analysts, and consultants have dealt with for a long time. However, with the advent of the 2030 Agenda for Sustainable Development, the challenges involving ODA impact evaluation multiplied. When assessing aid effectiveness through the lens of the SDGs, one needs to quantify impact across multiple, interconnected domains. A high interdependency between the different facets of development is a fundamental feature of the 2030 Agenda, as indicated in its founding document: 

“The interlinkages and integrated nature of the Sustainable Development Goals are of crucial importance in ensuring that the purpose of the new Agenda is realized.”

Unfortunately, empirical research on aid effectiveness has not fully addressed the complex and interdependent structure of the SDGs. Typically, aid effectiveness assessments focus on a limited number of development outcomes, chiefly GDP growth, or specific sectors (for example, water and sanitation, educational services, public health). While crucial in providing insights into individual policy domains, domain-specific analyses are unable to shed light on the systemic outcomes of ODA – in other words, ODA’s scope of impact on multiple and interdependent development dimensions. 

New data and methods can help address SDGs’ complexity

New aid data mapped into the SDGs (such as the AidData project) and artificial intelligence/computational frameworks (such as Policy Priority Inference) enable systemic impact evaluation. A recent paper using these novel tools shows that when the complex interdependencies across SDGs are accounted for, the impact of ODA on development outcomes becomes highly nuanced, heterogeneous across SDG indicators and countries, and far from unequivocal (see Guerrero et al., 2023, Aid effectiveness in sustainable development: A multidimensional approach).

This research shows that while a greater share of aid to government expenditures tends to lead to positive effects on various development indicators, a large share is not a necessary condition for successful outcomes. It suggests that by focusing only on the volume of ODA provided, aid donors may be engaging in misguided efforts. In addition, this study identifies specific development outcomes in individual countries that exhibit no significant impact from ODA, despite exhibiting overall positive effects in aggregate, highlighting the need for frameworks that allow the performance of country-specific assessments. (Note: a common practice consists of collating cross-national datasets and estimating the average (aggregate) impact for an “average country” that is representative of the sample. Hence, the conclusions following such analyses cannot be specific to any individual country in the sample.)

Country-specific and indicator-specific findings on the effectiveness of ODA have substantial implications for how it is administered. It can inform the international community on the best ways to restructure the global aid architecture according to the 2030 Agenda, and place effectiveness as a leading principle guiding ODA allocation. 

From an operational perspective, a true focus on results requires a comprehensive understanding of the heterogeneous impact of aid, which requires greater coordination across donors and recipients in terms of development priorities and targets. This, of course, brings a set of new challenges to the table; challenges that will need to be tackled sooner or later anyway.

Aid fragmentation and proliferation calls for increased coordination

The need for a more coherent and integrated approach across ODA flows is exacerbated by the reinforcement of new trends shaping the global landscape of international assistance. In particular, the proliferation of non-traditional donors and the increasing fragmentation of donor projects adds complexity (see the World Bank’s 2024 report Financing the Future). Between 2002 and 2021, the number of providers of official finance has risen from 62 to 112, while the number of donor agencies has more than doubled from 215 to 565 (including both new bilateral and multilateral entities). Consequently, recipient countries have to deal with an increased set of actors, each one with specific goals and requirements. This added complexity could lead to incoherent policy prioritization and additional, often unnecessary, burdens on public servants.

ODA fragmentation is further magnified by an increased fragmentation of the financial assistance provided by donors. For example, between 2000 and 2021, the average size of ODA grants shrank from USD 1.7 million to USD 0.76 million, a reduction of 230%. A larger number of smaller aid projects magnify the transaction and coordination costs of recipient countries, which disproportionally affect developing countries with lower income levels and weak institutional capacity. 

Donor coordination (that is, harmonization) has been a key issue in international cooperation since the 2005 Paris Declaration on Aid Effectiveness. Nonetheless, the risk of aid redundancy still plagues development assistance, even at the level of individual donors (see, for example, the debate around overlapping food assistance in the US). 

New digital platforms that identify target populations already covered by humanitarian assistance are a promising venue to avoid the overlap of financial support by multiple agencies (see, for instance, the case of the deduplication system developed in Ukraine with the support of the United Nations Development Programme). However, more efforts are needed to determine which programs are redundant and which ones are the most effective across both the donor community and the whole development spectrum.

Aid coordination requires measuring systemic effectiveness

To reduce the inefficiencies associated with the excessive fragmentation of international assistance, and to avoid redundant projects, traditional and non-traditional donors should work toward improved coordination of aid delivery. Transparent information sharing and the identification of common development targets are a good starting point, but data and methodological innovations in measuring systemic effectiveness may also be necessary. 

The SDGs provide a solid framework around which to orient these efforts. However, the alignment of aid priorities to the 2030 Agenda will only be possible through a better understanding of the impact of different projects on the whole development spectrum, which is hardly informed by siloed analyses.

Assessing the role of international aid in promoting the 2030 Agenda requires new data and methods to measure its effectiveness across multiple development dimensions. Only holistic approaches can increase coordination across donors, recipients, and projects, and help develop coherent aid prioritization strategies to navigate an increasingly complex aid architecture.