By George Ingram, Senior Fellow – Brookings Institution, Tessie San Martin, Chief Executive Officer – FHI 360, and Sally Paxton, U.S. Representative – Publish What You Fund. George Ingram is current chair of Friends of Publish What You Fund, and Tessie San Martin will take over this role on 31 March. The article first appeared on the website of the Brookings Institution.

• As traditional aid shrinks, non-ODA financial flows are increasingly crucial. Their transparency, however, lags far behind.
• Better visibility into non-ODA flows will unlock smarter investments and stronger outcomes. Therefore, extending transparency is essential to ensuring that new development funding achieves real impact.
• As the U.S.—until recently the world’s largest bilateral donor—scales back traditional aid, and other major donors follow suit, transparency in non-ODA financial flows is critical to meeting urgent humanitarian needs.

A new development landscape

The last few months have upended the traditional development aid picture. The U.S., by far the largest bilateral global donor until recently, has shut down most of its traditional aid programs. The immediate and longer-term consequences of these large and sudden cuts are, by many accounts, devastating.[1] But the U.S. is not the only bilateral donor cutting official development assistance (ODA). A number of other major donors have announced significant cuts to their own ODA budgets, including the U.K., Germany, France, the Netherlands, Finland, Norway, Sweden, and Switzerland.

How will the cuts affect development outcomes? What will be the implications for different flows into sectors and countries? How will priorities change as donor flows change? What might be the intended and unintended impact of the changes? Answers to these questions matter for aid effectiveness. Accurate, granular and timely information on what is being funded, and with what results, enables funders, recipients and other stakeholders to plan, adapt, and design better programs. It allows funders to direct dollars more efficiently to achieve their objectives.

The same types of questions apply to non-ODA development financing. But in too many instances, answers are hard to come by. We have a relatively accurate, if still incomplete, picture of ODA. Especially for the largest donors, both the International Aid Transparency Initiative (IATI) and the Organisation for Economic Co-operation and Development’s Development Assistance Committee (OECD-DAC) data give financial information on amounts, recipients, and locations. But we know relatively little about a large and growing share of non-ODA financial flows—the diverse flows from development finance institutions (DFIs), blended finance, emerging donors, and non-sovereign lenders. The emerging picture is one of increasing fragmentation, varying degrees of reporting, both in terms of quality and granularity, and no unified effort to understand resource flows toward shared objectives. This has consequences for policymakers aiming to make the most of both ODA and non-ODA resources.

Charting the shifting landscape of non-ODA flows

DFIs and multilateral development banks (MDBs) have grown in importance in recent years, responding to demands to do more with their own resources and to mobilize increasing amounts of private finance, as called for in the G20 independent expert group report “The Triple Agenda.” There are also new actors, such as BRICS countries, Saudi Arabia, and Türkiye, along with increased roles of the private sector and philanthropy. With these different flows and donors come different levels of disclosure. For example, while sovereign MDB flows (funding to governments, e.g., World Bank IBRD resources) have relatively high levels of transparency, non-sovereign flows (e.g., MDB and DFI financing for private sector entities) are very limited, especially at the project level. Related private sector investments are difficult to trace, often because of DFI claims of commercial confidentiality. This confidentiality concern is no excuse. A range of private sector investors have made clear, for example, that better information on where official support for private investment goes, in what sectors and with what risk, will allow them to be more thoughtful, and even aggressive in where they place their money. Some of the information is available, but it is scattered and expensive to search piecemeal.

New resources from new sources are welcome and needed, but both policymakers and private investors need to be able to understand the architecture of development finance, its trends, and its impact to better coordinate and make the most of every dollar deployed. The U.S. and other donors cannot influence or plan on flows they cannot see.

Here are key questions about aid transparency that policymakers who want to get the most of their own foreign assistance resources should want addressed:

• What, and to where, are total non-ODA development flows? The Publish What You Fund DFI Transparency Index reveals data on the leading MDBs and DFIs, at least among sovereign DFIs. However, other non-ODA flows, including non-traditional donors (including China); non-sovereign private flows from institutional investors, especially in emerging markets; and philanthropic flows, are more opaque. The amounts are not trivial. For example, six large DFIs[2] that are not included in the DFI Transparency Index have a combined total asset size of approximately $3.86 trillion.[3] This means that there are significant flows that do not allow stakeholders, including the U.S. Government, to analyze the best use of all the different kinds of their own resources (e.g., grants, loans, and insurance) to ensure coordination, learning, and accountability.
• What do we know about results, impact, and learning? What can we adjust to maximize effectiveness? Information focused on financing results—for the purposes of monitoring, evaluations, and impact measurement—are highly valuable but too often hard to obtain.[4] Although the situation has slowly improved, the Aid Transparency Index has repeatedly called for the publication of more robust impact data. The 2023 DFI Transparency Index found almost no disclosure of impact data among the 21 non-sovereign institutions assessed. Without this transparency how can the U.S., or other governments, ensure every dollar spent overseas achieves the administration’s objectives of making America stronger, safer, and more prosperous? And as the world struggles to reach the 2030 SDGs, are we even able to assess how to get there?
• Do we know what instruments are best used for maximizing impact? Which instruments are best deployed for achieving which results? Non-ODA financing instruments like concessional loans, political risk insurance, and equity are preferable to ODA in specific situations and for specific purposes. However, many non-ODA financing entities do not always report on the instruments used, and rarely do DFIs report evidence of effectiveness or learnings by instrument. As the U.S. seeks to expand its use of non-grant instruments and modalities, how will it be able to understand the best options for generating results?
• What resources are directly funding locally led development? For two decades, global development financing policy has been aiming to shift decisionmaking authorities to local stakeholders, as a tool to enhance self-reliance in the longer term. While USAID has led the U.S. bilateral effort through four administrations, other donors are also following along this path, as evidenced by 20 donor agencies signing the “Donor Statement on Supporting Locally Led Development.” Publish What You Fund has carefully followed and monitored the progress of key donors in supporting locally led development. Other than USAID, whose reams of documentation has disappeared with the recent dismantling of its website, other donors have yet to provide data assessing their progress on locally led development.
• What do we know about efforts to mobilize the private sector? With ever-growing global development needs and increasingly stretched public resources, there is a clear recognition that a significant increase in private-sector funding is needed to help fill the gap in development finance. One expert report recommended an annual increase in private capital mobilization (PCM) to $240 billion. DFIs are currently way off that mark, with current levels falling between $64 and $71 billion. DFIs agree in principle that more needs to be done to mobilize the private sector at scale. However, they have so far been reluctant to publish the granular information that has been recommended, including better measurement and disclosure of PCM. DFIs need to provide the data that private financiers have been demanding, including credit performance and risk, contract terms, impact, and other project-level information, so they know better where to invest.

Going forward

Development assistance is changing. New funding flows and approaches could help move the world toward more sustainable country-led development. To understand the nature and extent of the new trends, what works and what doesn’t, we need to apply lessons learned to extend transparency to non-ODA financial flows. ODA transparency may not be perfect, but it is robust enough to have enabled better cross-donor coordination, accountability, and impact. The same level of transparency needs to be extended to non-ODA flows. If the private sector is to significantly increase its investments, it needs the data on development finance flows that they have repeatedly said they need.

For both managers of non-ODA financial flows and policymakers, three recommended steps forward include:

• First, developing means to disclose relevant data in an accessible format to ensure it is available to all stakeholders, including national and local actors.
• Second, analyzing the levels of transparency for each flow and source – this includes amounts, program design and implementation, and impact.
• Third, understanding and analyzing the emerging trends in terms of financing sources, amounts, and instruments.

The nature of global development is changing rapidly. Better information on non-ODA financing flows can help to ensure new investments have the best chance at delivering future gains.

[1] The U.S. has also dismantled an enormous source of data and information ranging from policy impacts, progress, monitoring and evaluations. See more about that here.

[2] China Development Bank, Industrial Bank of Korea, Korea Development Bank, Japan Finance Corporation, Brazilian Development Bank, Development Bank of Japan, Japan Bank for International Cooperation.

[3] Xu, Jiajun, Régis Marodon, Xinshun Ru, Xiaomeng Ren, and Xinyue Wu. 2021. “What are Public Development Banks and Development Financing Institutions? – Qualification Criteria, Stylized Facts and Development Trends.” China Economic Quarterly International, volume 1, issue 4: 271-294. DOI: https://doi.org/10.1016/j.ceqi.2021.10.001

[4] This loss has been aggravated through the dismantling of USAID’s website, including the DEC (essentially the USAID library of documents) and the Evaluations Dashboard, which means years of U.S. evaluations and learning have been lost.