The OECD’s Development Assistance Committee, which sets international aid rules, met last week to discuss how overseas development assistance flowing through private sector instruments (PSI) should be used and reported.
There are a number of private sector development finance institutions (DFIs), which receive money from donor governments to invest in aid projects.
However, the DAC meeting in Paris on 5 December failed to agree on final rules – although some interim measures were approved.
One area of conflict is whether aid should be reported at the point the donor passes it to the DFI, or when that actor invests it.
Development NGOs are concerned that the business-like model pursued by DFIs could divert funds away people and places most in need towards projects that are the most profitable.
Julie Seghers, OECD policy and advocacy advisor at Oxfam, said: “The lack of transparency on how aid money is spent, and the lack of accountability to the country on the receiving end, means there is a real risk aid won’t get to the communities who need it most.
“There is also no guarantee that aid will only be invested in companies that fully respect human rights and environmental standards and pay their fair share of taxes.”
She urged donor countries to “get back to the negotiating table” to agree a set of strong safeguard with recipient countries and civil society groups.
Polly Meeks, senior policy and advocacy officer at Eurodad, added: “Donors have an obligation to make sure that every single euro spent on development aid achieves maximum impact in the fight against poverty and inequality.
“Scarce aid funds must not be diverted into private schemes, and away from where they are needed most.”
She also raised concerns that the DAC had not yet agreed firm rules to address so-called ‘tied aid’, which sees public aid funds channelled to companies from the donor country.
“There is a real risk that private sector instruments will become a back-door subsidy for companies in donor countries,” Meeks said.
“It is already commonplace for donors to ‘tie’ their aid to companies in their own countries and the committee’s weak stop gap arrangement is likely to make matters worse.”
In a statement issued after the meeting, the DAC reaffirmed its commitment to implementing rules of PSIs and said “steps will be taken on issues related to transparency, additionality and reporting”.
NGOs welcomed this but called for further clarity on the scope of the new regulations and whether they would be mandatory or not. They added that the statement did not touch on many of their other concerns, such as ODA diversion, 'tied aid', human rights safeguards, and tax compliance.
