Chapter 2. Funding to the multilateral development system

The 2030 Agenda for Sustainable Development and the interconnected nature of the development challenges of our time call for a stronger and renewed role of multilateral co-operation to foster a new era of reduced poverty, economic and social progress, environmental sustainability and peaceful and inclusive societies. But how are current funding patterns supporting this greater need for multilateral co-operation? Are they holding the system together or are they pulling it apart? This chapter attempts to answer these questions by providing an overview of the main trends of official development assistance (ODA) financing to the multilateral system. As an innovation to previous editions of this report, the second part of the chapter examines what the “beyond ODA”, broader funding landscape of multilateral organisations looks like to discuss the implications of efforts to attract funding from a wider range of sources: China and other emerging economies, philanthropy and the private sector.

Chapter highlights

This chapter focuses on funding to the multilateral development system, recognising the role that the scope and nature of funding plays in enabling multilateral organisations to function effectively and the incentives it creates for individual institutions and for systemic collaboration. The chapter first examines the main trends and features of ODA resources channelled to the multilateral development system. This analysis provides transparency and accountability for the ODA spending of members of the Organisation for Economic Co-operation and Development's Development Assistance Committee (OECD DAC), showing aggregate outcomes of individual funding practices. Then, as an innovation to previous editions of this report, the chapter quantifies and discusses the sources of funding available to multilateral organisations beyond ODA resources. It considers how they vary in their range and importance for different groups of multilateral organisations. The chapter then considers what the implications of this new funding landscape are for the multilateral development system and its ability to achieve the 2030 Agenda. Key messages from this analysis include:

Funding to the multilateral development co-operation system is increasing, signalling strong support. DAC countries continue to allocate a stable share of their ODA resources to the multilateral development system. This demonstrates the importance they place on multilateral institutions for fostering peace and development worldwide. Financial support from other sources is increasing too, including from: South-South providers, corporations and private philanthropy, as well as other multilateral institutions. While there are variations among institutions in terms of how much funding they mobilise from these other sources, these account collectively for between 12% (for the Global Fund) to a maximum of 71% for IDA.

Increased volumes of funding are not enough for the multilateral development co-operation system to work effectively, quality of multilateral funding also needs to be ensured. Chapter 6 provides discussion on effective multilateral funding, but this chapter considers some findings at the global level. Both ODA funding and new sources of financing to the multilateral system are increasingly scattered. This incentivises project-based interventions and jeopardises the provision of transformative, integrated solutions that are needed to achieve the 2030 Agenda. Therefore, sovereign states should counter anti-multilateralism, ensure adequate financial support for multilateral institutions and provide funding in ways that enable the effective functioning of the system.

Broadening the funding base and accessing alternative sources of financing remains a priority for most institutions, but resources must be aligned with the mandates of multilateral organisations. A balance must be struck between obtaining more funding and the need to ensure that this funding will not skew allocations away from key priorities. Sovereign states must support multilateral organisations in ensuring public resources target those who need them the most and that these resources are in line with the mandates of these organisations.

Key facts:

Support for the multilateral development co-operation system remains strong in financial terms. ODA resources for multilateral institutions increased to USD 63 billion in 2016 – a 14% increase in real terms compared to 2015 levels – continuing to account for a stable share of DAC members’ ODA (41%).
China is establishing a leadership role in the multilateral system, through greater funding to and influence on ‘traditional’ multilateral institutions. China more than doubled its contribution to IDA18 (SDR 428 million), becoming the 11th largest funder to International Development Association (IDA). Its funding to United Nations Development System (UNDS) also increased significantly (+80% between 2011 and 2016) extending the reach of its international co-operation and the influence of its global action.
Funding from sovereign states excluding DAC members was the fastest-growing component of the financing to the UNDS (+52% in 2011-16, reaching USD 1.5 billion in 2016). It increased by 22% between IDA17 and IDA18, at SDR 1.08 billion. In total, however, it accounts for 5% for the UNDS and for 2% for IDA.
Because of IDA’s debut on the capital market, private finance in the form of market borrowing accounts for 30% of total resources for IDA18. For the UNDS, private finance (commercial private sector, private philanthropy and non-governmental organisations [NGOs]) is an important component of the funding model of some organisations (e.g. the United Nations Children’s Fund [UNICEF], World Intellectual Property Organisation [WIPO], etc.). However, this remains a small part of the UN funding portfolio: 9% in 2016 or USD 2.4 billion, despite it increased by 22% between 2011 and 2016.

2.1. Global trends of ODA financing to multilateral organisations

DAC countries place great importance on the multilateral development system as a prime channel for development co-operation. This system comprises over 200 multilateral agencies and institutions, including the United Nations, the World Bank, global funds and other institutions mandated to promote development worldwide.1 Although these institutions are – for brevity – referred here to as part of the ‘multilateral development system’, they are far from representing a perfectly cohesive and coherent system, which develops through an orderly process guided by simple principles. Thus they have also been collectively referred to as an ‘ecosystem’ or even a ‘non-system’, see (OECD, 2008[1]); (Reisen, 2009[2]). This section examines the scale at which the multilateral development system is used as a channel for development co-operation and the main patterns relating to the ODA resources to these organisations.

Trend 1: ODA funding to multilateral development organisations has increased but rising mistrust in multilateralism could lead to a downturn in the near future

Funding to multilateral organisations reached an all-time high at USD 63 billion

The prospects of ODA funding for multilateral organisations did not seem too rosy in 2015. Both core contributions (-1%) and overall funding (-0.4%) to multilateral organisations had contracted compared to the previous year. However, ODA funding to multilateral organisations saw a record increase to USD 63 billion in 2016 (+14% in real terms compared to 2015 levels), or an additional USD 7.7 billion compared to 2015 (Figure 2.1).

This increase was mainly due to a rise in multilateral funding by Germany, which accounted for 40% of this change, having almost doubled its multilateral allocations (from USD 5 billion in 2015 to USD 8.2 billion in 2016). Germany’s considerable increase in funding was mainly through greater earmarked funding to several UN organisations. Large shares of the 2016 aggregate increase in multilateral funding were from the United States, providing USD 1.8 billion, and the United Kingdom, providing USD 887 million of ODA to the multilateral development system, as illustrated in Figure 2.2. Although with a milder impact on overall volumes, other countries also significantly increased their share of multilateral funding between 2015 and 2016. For example, Poland recorded a smaller increase in volume, accounting only for 3% of the aggregate change, but in relative terms its multilateral portfolio increased considerably (by 63%). Similarly, Spain’s contribution was 8% of the aggregate volume change or 60% in terms of its portfolio (triangles in Figure 2.2). Seven DAC countries decreased funding to multilateral organisations between 2015 and 2016, and the most significant decreases, in absolute volume terms, were recorded by Sweden and Japan.

Political and economic developments in some large multilateral providers and increasing mistrust in the shared benefits of international co-operation could reduce volumes of ODA in the near future. This puts the benefits that multilateral institutions can achieve at risk. Further, the articulation of the multilateral engagement of some large multilateral providers may also change in the near future. For instance, the exit of the United Kingdom from the European Union (EU) (i.e. Brexit) could affect the United Kingdom’s overall volumes of multilateral support and their distribution. The possible implications of Brexit are discussed in Box 2.1.

Box 2.1. Potential impacts of Brexit on development co-operation

Uncertainty still prevails in the current debate on Brexit. Discussions on its implications are mostly centred on issues such as trade, security and migration, but Brexit will potentially have a considerable impact also on development co-operation. It will affect the bilateral programme of the United Kingdom and its financial support and co-operation with the European Union and the rest of the global development co-operation system.

The United Kingdom is one of the largest providers of development co-operation. It was the third largest donor among the members of DAC in 2017, providing USD 17.9 billion of ODA. It has consistently met the UN target of allocating 0.7% of gross national income (GNI) as ODA since 2013. The United Kingdom is also the second-largest provider of ODA resources to the multilateral development system, to which it directs 36% of its ODA, 55% if earmarked funding is also taken into account. The United Kingdom is one of the most generous contributors to the EU’s development budget, the extra-budgetary European Development Fund (EDF), trust funds and the European Investment Bank (EIB). Only Germany and France provide larger volumes – and EU institutions represent the main recipient of the United Kingdom’s core funding (USD 2 billion in 2016). The United Kingdom is a top provider for several more multilateral institutions, including the World Bank, several UN entities and various global funds (Figure 2.3).

Brexit is likely to affect the development co-operation system through three channels: the overall size of United Kingdom’s ODA budget; the re-orientation of British funding from the European Union to different development co-operation delivery channels; and the long-term realignment of the EU development policy following Brexit.

The United Kingdom has recently reaffirmed its future commitment to the 0.7% ODA/GNI target, which has been enshrined in United Kingdom legislation in 2015 (Government of the United Kingdom, 2015[4]). The United Kingdom has also signalled a commitment to multilateralism in its 2016 Multilateral Development Review. It explicitly states that reinforced engagement with the multilateral system is “vital to the United Kingdom”, following the decision to leave the European Union (Department for International Development, 2016[5]).

Nevertheless, the post-Brexit slump in the sterling against the euro and slower economic growth could put pressure on United Kingdom’s ODA budget. Combined with a gradual shift within its 0.7% target away from Department for International Development (DFID)-led programmes, this could reduce the United Kingdom’s contributions to the multilateral development co-operation system (Manning, 2017[6]). Brexit has already produced direct negative effects on the value of United Kingdom’s ODA abroad, through the post-Brexit depreciation of the sterling (Henökl, 2018[7]). (Mendez-Parra, Papadavid and Willem Te Velde, 2016[8]) have estimated that the combined cost of the devaluation (through aid, trade and remittances) for developing countries could be USD 3.8 billion.

Uncertainty looms over the future of United Kingdom’s contributions to EU-based programmes. If discontinued, this could result in a re-allocation of funds to other multilateral partnerships or its bilateral programme. (Henökl, 2018[7]) proposed three possible scenarios:

Scenario 1: Total rupture and no United Kingdom engagement in European external relations at all (“un-differentiated disintegration”).
Scenario 2: Selective participation and “muddling-through, creation of new flexible approaches and ad hoc instruments”.
Scenario 3: Continued close United Kingdom involvement in a reformed partnership, strengthening Europe’s role in the world.

The same author suggests that most likely Brexit could result in a “loose and unstructured European Union-United Kingdom co-operation on a case-by-case basis, reducing the influence of both the European Union and the UK” (Henökl, 2018[7]). For instance, the United Kingdom may want to remain engaged with EU-ACP1 relations after Brexit, especially since 41 out of the 78 ACP countries are members of the Commonwealth. For now, the United Kingdom has shown interest in participating in some of the EU budgetary programmes of the new 2021-2027 Multiannual Financial Framework (MFF) as a non-Member State (European Commission, 2017[9]). (Gavas, 2018[10]) argues that additional resources from non-Members will be welcomed by the EU, but potential governance requests from the United Kingdom might be less attractive.

How will the United Kingdom use the resources freed up from the withdrawal from European Union development programmes? According to the joint report on Phase One of Brexit negotiations (European Commission, 2017[9]), the United Kingdom will be reimbursed its 16% share of paid-in capital in EIB, since it will no longer be able to continue its membership of the EIB. The United Kingdom could re-direct these resources, together with the share of contributions that the United Kingdom withdraws from current EU development programmes, either to its own bilateral channels or to multilateral funding mechanisms. (Price, 2016[11]) argues that a shift of United Kingdom’s aid from multilateral to bilateral channels might challenge the United Kingdom’s positioning in the global development arena and require an increase in the national administrative capacity and costly bureaucratic reforms. The United Kingdom could set up a new national development bank-like institution, further expand the Commonwealth Development Corporation (CDC) or support existing multilateral channels, such as the World Bank (Anderson, Juden and Rogerson, 2016[12]).

(Lightfoot, Mawdsley and Szent-Ivani Balazs, 2017[13]) expect that Brexit will accelerate existing trends within United Kingdom’s development policy of channelling resources towards the private sector, including through blended finance instruments. These ideas seem to be confirmed by DFID’s first-ever “economic development strategy”. In this, three major trends in the United Kingdom’s post-Brexit commitments to financing for development emerge. First, a stronger reliance by on the CDC to provide private investment to poor countries, using innovative financing mechanisms. This signals a shift away from “recent traditional aid”. Second, a willingness to take a leading role in reshaping the international system. Third, and more broadly, an enhanced focus on private-sector-led development and trade and on economic growth to reduce poverty (Department for International Development, 2017[14]). These elements are reflected in the shift of a large share of British ODA spending away from DFID to other departments. Overall, there is a growing narrative that United Kingdom’s aid allocations need to benefit the United Kingdom’s national interests, and Brexit could reinforce a more explicit and expanded focus of aid spending on British economic and geopolitical interests.

Finally, Brexit could have impacts on the global positioning of both the United Kingdom and EU, as well as on their operations on the ground. (Barder, 2016[15]) claims that both the European Union and the United Kingdom will suffer from reduced co-ordination and common positioning in key global fora, weakening the influence and voice of both in the multilateral development co-operation space. Brexit could also diminish the efficiency and co-ordination gains stemming from joint planning and joint programming among EU donors, which are critical for the achievement of the 2030 Agenda (Watkins, 2016[16]). While there might be few short-term impacts from Brexit for developing countries, more serious economic and relational changes could emerge in the long term (Westcott, 2018[17]).

Several factors have influenced the United Kingdom’s foreign development policy in recent years: greater security challenges; a more complex global geography of poverty; emerging market economies as more influential development partners; and the consequences of the global financial crisis, both in the United Kingdom and abroad. Brexit is one of many issues reshaping British foreign aid, but one with possibly considerable and long-term consequences.

← 1. ACP stands for African, Caribbean and Pacific group of states. This group was created by the Georgetown Agreement in 1975. All of its member states, except Cuba, are signatories to the Cotonou Agreement with the European Union.

The multilateral development system and the refugee crisis

Refugee crises have had a significant impact on ODA spending in recent years. When the Syrian refugee crisis hit its peak, ODA spending in support of refugees within donor countries increased five-fold, driving upwards overall ODA volumes. Consequently, resources spent by donor countries on hosting refugees reached 11% of total net ODA in 2016 and decreased slightly in 2017 (representing 9.7% of net ODA, or USD 14.2 billion).

The impact of refugee crises on ODA funding to multilateral organisations is, however, less clear. The OECD DAC Peer Reviews of a few DAC members [ (OECD, 2016[18]); (OECD, forthcoming[19])] highlighted decreases in ODA funding to multilateral organisations during the crises. It recommended that providers avoid reallocating ODA to manage refugee costs. Increased spending on in-donor refugee costs did not reduce ODA funding to the multilateral system as a whole. Countries with the largest inflows of refugees, and thus greater ODA in-donor refugee costs – such as Italy, Germany and Slovenia – have still recorded increases in multilateral ODA (

Figure 2.4). Further, as discussed later, EU DAC countries have increased funding to multilateral organisations, including new EU trust funds, as a way to contain migration flows.

Therefore, while overall funding levels to the multilateral development system may not have been affected, the refugee crisis could have impacted: 1) allocations among institutions; and 2) the composition of funding to the multilateral system in favour of greater earmarking of funds. For instance, Germany’s increased ODA funding in 2016 was mainly earmarked for UN entities (UN Refugee Agency (UNHCR) and UNICEF) to ease the refugee crisis.

The share of official development assistance allocated to and through multilateral organisations, however, remains levelled-off

Despite the 2016 volume increase in ODA resources to multilateral organisations, the share of these resources in total ODA remains stable. In 2016, core contributions were 27% of gross ODA (Figure 2.5), while the total use of the multilateral co-operation system stood at 41% of total gross ODA. As illustrated in Figure 2.1, core contributions have remained a constant share of total ODA for several decades.

Trend 2: ODA funding practices continue to deepen a “bilateralisation” of multilateralism

Sovereign states can provide funding to multilateral organisations in the form of core resources, whether negotiated, assessed or voluntary. These are resources that the governing boards of multilateral organisations have the unqualified right to allocate within the organisation’s charter. Furthermore, sovereign states can provide non-core or earmarked resources to multilateral agencies. These are resources earmarked for a specific country, project, region, sector or theme, over which the sovereign state retains some degree of control. These resources can be administered through single or multi-donor trust funds.

Previous editions of this report have been at the forefront of investigating hard facts and policy implications of the increase in earmarked funding in the multilateral development system. In particular, the last edition provided an in-depth analysis of why donors earmark resources to the multilateral development system. Findings indicated that the increase corresponds to growing domestic scrutiny over ODA spending in many DAC countries, which - coupled with perceptions over the inefficiencies of the multilateral development system - required greater traceability and visibility of how ODA resources are spent. Data presented here (see Trend 3 and Chapter 3) suggest that the increase in earmarked funding is also due to a rise in (earmarked) humanitarian aid. This is especially true for some large providers of earmarked funding that are significant humanitarian donors, such as the United States.

Earmarked resources are a powerful means to mobilise resources, engage in partnerships and fill co-operation gaps [see, for example, (OECD , 2012[20]); (OECD, 2015[21]); (Thalwitz, 2013[22])]. They can help respond to specific needs, such as humanitarian crises and evolving development challenges. They can also enable partnerships that can access a variety of public and private resources. However, these resources bypass “purely multilateral” governance, whereby decisions on spending priorities and the overall size of the portfolio are made by all members according to collectively endorsed rules. This is why the rise of earmarked funding creates a “bilateralisation” of the multilateral development system. Through earmarked funding, donors can extend activities beyond the amounts decided through full-membership processes (e.g. replenishments or the institution’s budget cycle) increasing their influence on specific priorities. Further, a wide variety of financial arrangements is used to channel earmarked funding. This adds significantly to the complexity of the global development co-operation architecture. This has created risks of duplication, higher transaction costs and diminished coherence. It has also made the traceability and monitoring of these resources more complex. For individual multilateral organisations and bilateral providers, it has sometimes reduced coherence and impact of allocations. The previous report recognised the need for reforms, both from donors and multilateral organisations to enable resources to be used more effectively. The report presented a set of recommendations for the donor community to maximise the benefits of these resources and minimise costs. Chapter 6 furthers the evidence on earmarked funding through a multi-dimensional approach that assesses the quality of earmarked and core funding. This approach allows the quantification of “quality dimensions” of multilateral funding, such as predictability, flexibility, and alignment with multilateral organisations’ mandates and activities.

Financing that is earmarked for specific purposes continues to be the fastest-growing component of multilateral financing

Both core and earmarked funding increased between 2015 and 2016. However, earmarked funding continues to grow the fastest. As shown in Figure 2.6, it is the funding component that increased the most in 2016 (16% vs. 13% of core funding). Over a longer time period, between 2007 and 2016, earmarked funding more than doubled, from USD 9 billion to USD 21 billion. Core contributions grew by a more modest 45% in the same period, from USD 29 billion to USD 42 billion. Consequently, the share of earmarked funding in total multilateral funding has grown, from 23% in 2007 to 33% in 2016. This is partly due to an increase in humanitarian funding. Resources earmarked for humanitarian purposes almost doubled between 2011 and 2016, reaching USD 8.9 billion in 2016, equivalent to 43% of earmarked funds (up from 35% in 2011).

Multilateral organisations rely on earmarked funding to different extents

The European Union (see Box 2.2), the World Bank Group, and UN funds and programmes receive similar volumes of ODA funding. These ranged between USD 11.3 for the World Bank and USD 14.8 billion for the European Union in 2016. The composition of this funding, however, remains different among the three.

UN funds and programmes continue to be the most reliant on earmarked funding. As shown in Figure 2.7, earmarked funding reached 80% of total funding to the UN funds and programmes in 2016, up from 72% in 2011. Earmarked funding underlies the overall upwards trend of total ODA funding to UN funds and programmes (+33% between 2011 and 2016). Over the same period, core resources stagnated, averaging USD 2.9 billion. The UN funds and programmes receive one of the largest shares of total ODA funding among clusters of multilateral organisations. However, they receive the smallest share of core funding, only 6% of the total. These trends have prompted repeated calls from the UN to increase “the level and predictability of core funding” to “uphold [the UN’s] neutrality and multilateral nature” (United Nations, 2016[23]). Most recently, the UN Secretary-General reiterated these calls in a proposal to reposition the UNDS to work towards the 2030 Agenda (United Nations, 2017[24]). The associated Funding Compact between member states and the UNDS calls for core resources for the UNDS to be increased to at least 30% (from the current 15%) in the next 5 years. This represents a doubling of interagency pooled funds to USD 3.4 billion and entity-specific thematic funds to USD 800 million by 2023 (United Nations, 2018[25]). The UN repositioning and the Funding Compact are discussed further in Chapter 6.

Box 2.2. The European Union, a special case

The European Union is unique among DAC members in that it plays a dual role in development assistance. The European Union is a full DAC member and a donor of ODA in its own right, with its own development policy and own resources. However, it is also partly an intergovernmental organisation and partly a supranational organisation, operating through a set of multilateral institutions. For analytical and statistical purposes, the European Union is often presented as a multilateral organisation in DAC publications, including in this report. This report, however, also reflects, to the extent possible, this dichotomy.

The EU funds its “external action” from several sources, including:

The EU budget: The Council lays down and, with the consent of the European Parliament, adopts a seven-year Multiannual Financial Framework (MFF) – the long-term EU budget. This sets annual ceilings for each broad category of spending, including development co-operation, which is usually referred to as “external action”. Then, in a similar exercise to that of bilateral donors, the annual EU budget process determines how much funding from the EU’s own resources will be granted to development.
European Development Fund (EDF): This is financed through extra-budgetary contributions from EU member states. It is the EU’s main instrument for providing development aid to ACP countries and to Overseas Countries and Territories.
European Investment Bank (EIB): The shareholders of this institution are the 28 EU member states. It provides long-term finance, by borrowing in capital markets, in support of EU external co-operation and development objectives, both within the European Union and outside, either through its own resources or the EDF’s. It is covered by a specific guarantee from the European Union member states.
European Trust Funds: Since 2013, the Commission can establish Trust Funds for external action. Four have been created so far (the EU Trust Fund for Colombia, the EU Emergency Trust Fund for Africa, the EU Trust Fund in Response to the Syrian Crisis and the EU Trust Fund for the Central African Republic). They operate outside of the EU budget and are funded by contributions from member states and donors of non-member countries.
Facility for Refugees in Turkey: This operates within the EU budget but with faster and more flexible procedures. It is not a funding instrument, but rather a co-ordination mechanism that allows mobilisation of funds.
Regional blending facilities: These combine grants from the EU budget and the EDF with other public or private resources, such as loans from financial institutions, in order to mobilise additional funding to meet investment needs.
European Fund for Sustainable Development (EFSD): This is a financing mechanism created in 2016 under the EU External Investment Plan (EIP). It supports investments by public financial institutions and the private sector in the European Union and Africa. It is funded by the EU budget and other sources, in particular the EDF.
Loans and guarantees covered by the Guarantee Fund for External Actions (GFEA): GFEA was set up in 1994 to cover defaults on loans and loan guarantees granted to non-EU countries from the EIB, the EU’s Macro-Financial Assistance and Euratom loans.

Earmarked funding is a valuable resource for the World Bank Group but represents a less prominent share of total financing than for the UN. At USD 2.6 billion, earmarked funding represented 23% of the ODA financing of the World Bank Group in 2016 (Figure 2.7). The World Bank Group recognises earmarked funds as an important source of funding to expand activities in fragile contexts, fill gaps and promote innovation. However, despite this lower reliance on earmarked funding as compared to the UN funds and programmes, the World Bank Group too has highlighted the challenges earmarking funds presents. It highlighted concerns that fragmentation challenges strategic priorities and adds to transaction costs (World Bank Group, 2018[26]). Therefore, to enhance the net benefits of earmarked funding, the World Bank Group has implemented a comprehensive trust funds reform package.

Earmarked funding to the World Bank Group has shown several swings, causing volatility in the Group’s total funding levels. Although core resources have been fairly stable, averaging USD 8.5 billion per year in 2011-16, overall ODA funding dipped by 5% in 2016 compared to 2011 (Figure 2.8). The outcomes of IDA’s 2016 replenishment and of the capital increases to International Bank for Reconstruction and Development (IBRD) and International Finance Corporation (IFC) are not yet visible in OECD statistical data, but point to a substantial increase in resources to the World Bank [for IDA, see (Manning, 2017[6])]. IDA’s 18th replenishment, marked the largest in IDA’s 56-year history, although only marginally attributable to donor resources, as discussed in Section 2.2.2. Months later, in 2018, stakeholders also agreed a USD 13 billion paid-in capital increase (consisting of a USD 7.5 billion paid-in capital for IBRD and USD 5.5 billion paid-in capital for IFC) as well as a USD 52.6 billion callable capital increase for IBRD.

The funding model of the European Union has so far comprised minimal volumes of earmarked funding, but things are changing. The European Union has traditionally received most of its ODA funding as core contributions from its member states. While this is still the case, with core resources at USD 13.8 billion in 2016 accounting for 93% of the total, earmarked resources increased dramatically in 2016. They recorded a four-fold spike, reaching USD 1.02 billion in 2016, up from USD 240 million in 2015 (Figure 2.8). The increase in trust fund resources to the European Union took place against the backdrop of rising core funding, with total financing recording a 28% increase between 2011-16.

The increase in earmarked funding was the result of a deliberate choice by the EU. In 2012, it modified its financial regulations to allow the European Commission to set up and manage European trust funds. These funds can mobilise financing from and beyond member states.2^. EU trust funds are the most recent development in EU aid.3 They are designed to be used in specific circumstances, namely for emergency, post-emergency or thematic measures, drawing on voluntary contributions of different donors. EU trust funds allow for more rapid decision making. They are an instrument to provide faster, more flexible and more co-ordinated EU support in challenging environments, compared to other EU aid delivery methods.

To date, the Commission has established four trust funds4 to operate in emergency and post-emergency situations and as part of its response to the refugee crisis. Strongly concerned about the flows of refugees into their countries and the need to address the root causes of irregular migration and displacement, EU members and other European countries have provided massive support for such trust funds. While still a small share of its overall financing, earmarked funding to the European Union increased from around USD 202 million in 2011-15 to USD 1.02 billion in 2016 (Figure 2.8). EU sources point out that by the end of 2017, resources allocated to the EU Emergency Trust Fund for Africa alone amounted to EUR 3.3 billion (European Commission, 2017[27]). Some authors have argued – based on country studies on Libya, Niger and Ethiopia (CONCORD, 2017[28]) – that EU trust funds are mainly motivated by EU’s migration policy rather than developmental objectives. The DAC discussed whether resources to the EU Facility for Refugees in Turkey could qualify as ODA. Then, in 2018, based on an analysis of the fund’s activities, decided to set the ODA at 100% of the Fund’s operations for 2017 flows.

If the proposal presented in May 2018 by the European Commission for the 7-year budget goes through, the EU’s existing instruments will be merged into a single Neighbourhood, Development and International Co-operation Instrument (Box 2.3; (European Commission, 2018[29])). The European Commission argues that this merger will create more coherence. However, critics worry that it could detract attention away from priorities such as the SDGs, in favour of EU foreign policy issues such as preventing migration (Igoe, 2018[30]). The budget proposes spending EUR 123 billion on the EU’s work outside its borders between 2021-2027. This is a 26% increase from the period ending in 2020, but still below the volume that would allow EU countries to reach the 0.7% ODA-to-GNI target (Box 2.3).

For other UN agencies, earmarked funding represents a significant source of financing at 46% of their total. Its weight is lower for regional development banks (17%) and other multilateral organisations (23%). All three clusters of organisations have recorded increases in overall financing, with other multilateral organisations recording by far the strongest growth (+42% in 2011-16), mainly through core allocations (Figure 2.8).

Box 2.3. The implications of the new EU budget for development policy

In May 2018, the European Union announced a proposal for the external action spending within the 2021-2027 MFF. This proposal marks a significant increase in the resources the European Union allocates to external action, with a new portfolio of EUR 123 billion, a 26% increase from the previous MFF.

The proposal also marks an important shift in the internal architecture of the EU external action, entailing a profound restructuring of its instruments. Most of the existing instruments will be merged into a single Neighbourhood, Development and International Co-operation Instrument (NDICI) with worldwide coverage. The EDF, currently an extra-budgetary instrument, will be integrated into the EU budget. The “external action” section of the 2021-2027 MFF will comprise only four instruments (the broad NDICI, Humanitarian Aid, Cooperation with Greenland and Overseas Countries and Territories, and Common Foreign and Security Policy), whereas the 2014-2020 MFF was made up of 17 instruments. Moreover, the new NDICI will include an investment framework for external action, which, building on the External Investment Plan (EIP) and the EFSD, will crowd-in funding from the private sector and additional donors.

The European Union argues that the restructuring will simplify the financing architecture and allows greater coherence and impact. Indeed, the proposal bears several implications for the EU’s development policy and the role of the European Union in the international development co-operation architecture. First, with the proposed increase in the external action budget to EUR 123 billion over 2021-2027, the prominence of the external action in the overall EU budget would become greater, as the external action would come to account for 10% of the EU budget. Second, although the European Union will no longer be able to count on United Kingdom’s funding following Brexit (or at least not in its totality), the increase to EUR 123 billion would make of the European Union one of the largest DAC donors. As examined in the second part of this chapter and in Chapter 3, the European Union is already an important funder to other multilateral organisations and to developing countries. With this new, larger portfolio, its spending capacity and influence in the international co-operation architecture would further increase.

Doubts and concerns also loom over the proposal for external action spending within the 2021-2027 MFF. As noted by (Gavas, 2018[10]), past experience shows that as negotiations progress, compromises are made and development is an area that generally suffers disproportionately from competing priorities. However, preoccupations do not solely concern the size of the spending envelope that will be finally agreed. Critics fear that the proposal to merge 12 existing instruments into one could detract from priorities such as the SDGs. Instead, EU foreign policy issues, such as preventing migration, would be favoured [see for example (Igoe, 2018[30]), (Chadwick, 2018[31])]. Indeed, bringing most of the EU foreign spending, including development assistance, under one instrument, could lead to ODA being used to promote the EU’s political priorities. For instance, an Oxfam analysis of projects approved under the “EU Emergency Trust Fund for stability and addressing root causes of irregular migration and displaced persons in Africa” highlighted that the instrument’s flexible nature has generated both opportunities and risks, and that it lacks sufficient checks and balances to ensure that European interests do not take precedence over the needs of the people that aid is intended to help (OXFAM , 2017[32]).

Trend 3: Individual DAC countries fund the multilateral development system to different extents and in different ways

DAC countries display strong heterogeneity in terms of both the size of their multilateral portfolio and its contribution to the overall ODA budget

Large heterogeneity exists across DAC countries in terms of the ODA volumes they channel to and through the multilateral development system. In 2016, the United States, which is by far the largest ODA provider, was also the largest multilateral donor. It contributed USD 5.9 billion of core resources and USD 6.1 billion of earmarked funding. This volume of core and earmarked resources is almost seven times larger than the total ODA resources contributed by the ten smallest multilateral donors. They collectively allocated about USD 1.8 billion. Overall, the sum of core and earmarked contributions in 2016 ranged from USD 12 billion from the United States to USD 23 million from Iceland (Figure 2.9). Despite being the largest ODA provider, the United States was not always the largest multilateral provider: the United Kingdom held that position for two consecutive years, in 2014-15.

The weight of multilateral support in the overall ODA portfolio of DAC members also varies significantly. As illustrated by the triangles in Figure 2.9, the use of the multilateral development system as a share of gross ODA ranged from 84% for the Slovak Republic to 28% for New Zealand. It averaged 41% for DAC countries as a whole in 2016. Small European Union members, such as Czech Republic, Poland, Slovenia and the Slovak Republic, rely the most on the multilateral system as a key channel for their development co-operation. The use of the multilateral development system as a share of gross ODA stands above 70% for each of them. This is mainly accounted for by assessed contributions to the European Union.

Further, as suggested by Figure 2.10 for DAC members with ODA portfolios below USD 3 billion in 2016, smaller ODA portfolios (horizontal axis) tend to be associated with larger shares of ODA channelled through the multilateral system (vertical axis), with the exception of two non-EU members – New Zealand and Iceland. These two countries both have an ODA portfolio below USD 500 million, and yet New Zealand channels only 28% and Iceland 38%, of development co-operation flows through the multilateral development system (below the DAC average of 41%).

DAC countries prioritise different clusters of multilateral organisations

DAC members determine their ODA allocations to multilateral organisations by considering several factors. The alignment of these institutions to the priorities of their bilateral aid programme is the most critical determinant (see Chapter 5). The actual distribution of ODA resources reveals that indeed DAC members prioritise different clusters of multilateral organisations to different extents, as shown in Figure 2.11.

In addition, the actual distribution of ODA funds among clusters of multilateral organisations seems to suggest that three patterns, or models, prevail, as depicted in Figure 2.12:

Highly polarised: Thirteen DAC members allocate over half of all their multilateral funds to just one cluster of multilateral organisations. This is the case for small EU members that direct the vast majority of their multilateral funding to the European Union. It is also the case for larger EU members, such as France, Italy and Spain. Two non-EU members also fall into this group: Iceland and Norway. They both target the UN as the main recipient of their ODA contributions to the multilateral development system.
Polarised: Thirteen DAC members have a polarised multilateral portfolio. They direct 35% to 49% of their ODA funds to only one cluster of multilateral organisations. In this case, there is more variety in terms of the top recipient cluster. Mostly it is the UN, but the EU, the World Bank Group and also the regional development banks feature among the top recipients for one or more DAC countries.
Evenly distributed: Finally, three DAC countries – the Netherlands, Australia and United Kingdom – have a multilateral portfolio that is fairly evenly distributed among clusters of multilateral organisations. No cluster emerges as an obvious preference. For these DAC countries, the largest recipient cluster receives less than 35% of their total portfolio allocations. This top recipient cluster is the UN for the Netherlands and the United Kingdom. Australia allocates an equal share of ODA resources to the two top recipient clusters, namely the regional development banks and to the UN.

This analysis does not show how thinly multilateral allocations are allocated among institutions, since it does not capture the distribution of resources within each cluster of multilateral organisations. Indeed, even if a DAC country allocates most of its portfolio to one cluster – let’s say the UN – this could be either a concentrated portfolio targeting a limited number of UN entities or a much more far-reaching portfolio that provides resources to a broad number of organisations. Therefore, this analysis clarifies the preferences of DAC members among groups of multilateral organisations but has no pretence to elucidate the degree of fragmentation, or the overall effectiveness, of sovereign states’ multilateral portfolios.

The use of earmarked funding varies greatly among DAC members

Three DAC members – the United States, United Kingdom and Germany – collectively accounted for 61% of all the earmarked funding provided in 2016 (Figure 2.13). This suggests that a change in earmarked funding provision from even only these three DAC members would have a dramatic impact on the whole multilateral development system.

Figure 2.13 also shows that even if some DAC members provide fairly small volumes of earmarked funding, these can represent a significant share of their total ODA financing to multilateral organisations (e.g. Australia, Norway, Luxemburg, Iceland). Since not all earmarking is the same, this analysis should be complemented with a discussion on the quality of these earmarked resources, as Chapter 6 attempts to do.

For the United States, the large volume of earmarked funding is closely linked to the prominent role that the country plays in humanitarian responses. Humanitarian assistance represented 62% of United States’ earmarked funding in 2016. Humanitarian assistance accounted for 46% of Germany’s earmarked funding and for a smaller part of United Kingdom’s earmarked resources (30%). DAC members earmark resources for a multitude of purposes, and humanitarian assistance represents the bulk (i.e. more than 50%) of earmarked funds for only six DAC members (e.g. Belgium, Ireland, Greece, Poland, Portugal and the United States; (Figure 2.14).

Trend 4: ODA financing concentrates on three clusters of multilateral organisations, but the multilateral system continues to expand and grow in complexity

The bulk of core and earmarked contributions from DAC countries continues to concentrate on three clusters of multilateral organisations. These are the European Union (see Box 2.3), the UN funds and programmes and the World Bank Group. Together, they comprised 63% of the total ODA funding to the multilateral development system in 2016. At the same time, the share of ODA financing to “other multilateral organisations” has increased, reaching 19% in 2016. “Other multilateral organisations” comprise a variety of organisations and global vertical funds, including the Global Alliance for Vaccines and Immunisation (GAVI), the Global Fund to Fight AIDS, Tuberculosis and Malaria (Global Fund) and the Asian Infrastructure Investment Bank. The reminder of ODA financing was directed to other UN entities (9%) and regional development banks (9%). The UN as a whole was the largest recipient, receiving 30% of ODA funding to and through multilateral organisations (or USD 19.5 billion in 2016) (Figure 2.15).

The evolution in the distribution of ODA funding across multilateral organisations reflects the continued expansion in the number of international organisations contributing to global development. It was estimated that, since 1945, the number of multilateral development banks has increased at a linear rate, with approximately one new MDB created every three years (Kellerman, 2018[33]). Thus, this figure provides only a lower bound for an overall proliferation in the multilateral development system that, most probably, has a larger scale. Further, several of the new institutions embody new partnerships and business models, contributing to a more diverse and complex ecosystem of multilateral development organisations.

Since the 1990s, there has been a proliferation of “special purpose funds”. This started with the creation of the Global Environment Facility in 1991 and accelerated in the years 2000, with the establishment of GAVI and the Global Fund (Manning, 2017[6]). The most recently established of these vertical funds, the Green Climate Fund, was officially launched in 2010. It is intended to be the primary vehicle for channelling the USD 100 billion pledged to developing countries under the United Nations Framework Convention on Climate Finance (UNFCCC). Following its first pledging conference in 2014, it became one of the largest vertical funds and, in 2016, received USD 1.66 billion of ODA financing.

Besides vertical funds, the rising economic power of China and emerging economies has favoured the establishment of new multilateral organisations that are not dependent on traditional donors. For instance, the Development Bank of Latin America (CAF), whose member states are all ODA recipients, except for two,5 has steadily expanded its membership and the scale of its lending. It is now a critical player in the region. But the most notable innovations are the Asian Infrastructure Investment Bank (AIIB), created in 2015 under the leadership of China with members from both developed and developing economies and the New Development Bank established in 2015 by the BRICS states (Brazil, Russia, India, China and South Africa). The AIIB received its first contributions, a total of USD 1.5 billion, from DAC members in 2016.

2.2. The funding landscape of multilateral development organisations beyond ODA: China, the private sector and philanthropy

2.2.1. How big is the financing available to multilateral organisations beyond ODA resources, and what can we learn from it?

The funding landscape of multilateral organisations is evolving, the sources of funding available to multilateral organisations and their relative importance changing. ODA financing from DAC members still represents the bulk of funding for most multilateral development organisations. Many rely on a few DAC members for the vast majority of their financing. At the same time, other sources are emerging or growing in importance, such as: China and other emerging economies, the private sector, philanthropy and other multilateral organisations. How large these resources are, and how they are evolving, however, have largely remained unanswered questions. The reminder of this chapter identifies what the other sources of funding are and how they vary in their range and importance to different groups of multilateral organisations. Then the chapter considers the implications of this new funding landscape for the multilateral development system and its ability to achieve the ambitions of the 2030 Agenda.

Indeed, focusing on ODA spending will remain critical to providing transparency and accountability for donors’ development co-operation flows. Increasingly, however, this may need to be complemented with additional information of the kind presented below. This will provide a comprehensive picture of the challenges and opportunities that multilateral organisations face in their financing and the impacts of these. In this regard, the broader scope of the new statistical framework that the OECD is developing to track and incentivise resources in support of sustainable development, the total official support for sustainable Development (TOSSD), could provide useful in the near future.

This section uses statistical sources drawn from individual multilateral organisations6 to assesses the overall funding landscape of three groups of organisations: 1) the United Nations Development System; 2) the MDBs (by focusing on the World Bank concessional finance window, IDA); and 3) vertical funds (by focusing on the Global Fund to Fight AIDS, Tuberculosis and Malaria). While the focus on these institutions does not cover all developments in the multilateral development system, it does offer insights into diverse situations. Further, these institutions account for over half of the multilateral development system in ODA financing terms, collectively receiving 54% of ODA resources channelled to the system in 2016.

The evolution of China’s role in the multilateral development system is discussed in Annex 2.A. A global overview of funding trends of the non-DAC providers that report statistical data to the OECD Creditor Reporting System is offered in Annex 2.B.

Key aggregate findings from this analysis are listed below and then developed in the next section. More detailed findings by groups of organisations follow. The key aggregate findings from this analysis are:

ODA by DAC countries remains the largest source of funding for the multilateral development system, even when all other sources are considered. ODA accounts for 65% of total funding for the United Nations development system, 29% for IDA in the 2016 replenishment and for 88% for the Global Fund.7
Other sources are slowly helping to grow the pie of resources available to multilateral organisations but not enough to curb the pervasive dependence on top providers. Dependence on the top donors is the highest for the Global Fund, where the top ten providers account for 91% of resources. For the UNDS it is 58%. It is lowest for IDA, where it fell to below 30% following the financial innovations introduced in IDA18. For all institutions considered but the Global Fund, the top ten providers comprise only DAC countries. For the Global Fund, the Bill and Melinda Gates Foundation is among the top 10 donors.
The financing innovations implemented in IDA18 make IDA an exception, even among multilateral development banks. Financing innovations, such as considering future loan repayments as “hidden” capital against which IDA can borrow on the capital market, has allowed IDA to augment its resources. It has also drastically reduced its dependence on the top 10 providers, which in the previous replenishment accounted for 40% of the resources. While private finance also plays an important financing role through market borrowing for other MDBs, they have not achieved the same results as IDA.
Private funding is expanding the lending capacity of IDA, while it has led to more earmarking for the United Nations Development System (UNDS). The additional lending resources that IDA will draw from bond proceeds are huge (30% of total resources for IDA18, or Special Drawing Rights (SDR) 15.9 billion). They basically come unearmarked, although IDA may need to tailor its bond content to investor preference. Its allocations across countries and the degree of concessionality of its operations may be impacted to an extent that is not yet clear. In contrast, private finance (the commercial private sector, private philanthropy and non-governmental organisations [NGOs]) remains a small part of the UNDS funding portfolio: 9% in 2016, or USD 2.4 billion, although it does contribute to some large initiatives and projects in individual UN organisations. Funding to the UN, especially from corporations, can however lead to issues common to other forms of earmarking of resources. These include: fragmentation and misalignment of resources with the priorities and strategic objectives of the UN entities involved, to the detriment of the multilateral character of UN operations and its democratic governance (Seitz and Martens, 2017[34]).
Developing countries are increasing contributions to the multilateral system but their share remains small. Funding from all sovereign states, excluding DAC countries, increased in volume for the institution considered. However, it did not necessarily increase as a share of total funding. It increased in volume for the United Nations development system where it stands at 5% of the total.8 It accounts for 2% for IDA, largely because of the large funding increase by China. It accounts for only 0.5% for the Global Fund, where 18 countries beyond the DAC provided funding.
China is carving out a leadership role in the traditional multilateral development system. This was especially evident in IDA18, where the massive increase in financing from China made it the 11th largest funder to IDA. Besides the IDA18 replenishment, China’s increased engagement with and influence on the World Bank is apparent in the establishment of initiatives such as the G20 Global Infrastructure Connectivity Alliance and the G20 Initiative in Supporting Industrialization in Africa and LDCs. These are hosted or supported by the World Bank and strongly reflect China’s influence and experience. China has also increased its funding to the United Nations development system (+80% between 2011 and 2016). Unlike other BRICS that have increased funding partly to have the UN implement development projects in their own countries (i.e. cost-sharing), China’s main aim is to extend the reach of its international co-operation.
Multilateral organisations, including the EU, are becoming increasingly important funders to the multilateral development system. The increased number of multilateral organisations involved in development, together with greater differentiation among multilateral actors, has led to funding increasingly being provided to multilateral organisations by other multilateral organisations. This is particularly true for vertical funds or large global trust funds. In addition, the European Union is also becoming a more prominent donor to other multilateral organisations. This report recognises the dual role of the EU, which is both a multilateral organisation receiving funding from its member states and a donor in its own right (as well as a DAC member). In 2016, it accounted for almost 10% of all funding to the United Nations Development System and 5% of funding to the Global Fund. The European Union could continue to grow in importance as a financier of other multilateral organisations, especially if the EU budget approves the proposed increase in resources for external action (see Box 2.3).
Some new (or growing) sources of funding represent new forms of earmarking and could challenge the ability of the multilateral development system to deliver a unified development agenda. In the context of stagnating donor resources and substantial financing needs to achieve the ambitions of the 2030 Agenda, broadening the funding base and accessing alternative sources of financing remains a priority for most institutions. Additional resources should, however, align with the mandates of the multilateral organisations and developing countries’ needs, as identified by the 2030 Agenda. Safeguards may be needed, especially in the context of funding from private corporations.

2.2.2. United Nations Development System

Diverse memberships, mandates and financing models imply different opportunities to attract sources of financing

The UN Development System includes the UN Secretariat as well as UN programmes, funds and specialised agencies, each with their own membership, leadership and budget. Financing models can vary greatly within the UN Development System, but most UN entities operate a grants-in-grants-out model. With no scope for taking contributions in loan form or for internal financial engineering, UN entities largely rely on securing, on a regular basis, grants from sovereign member states. Three notable exceptions are: UNICEF, WIPO, and the International Fund for Agricultural Development (IFAD). UNICEF has a long and successful history of attracting non-state resources from a large number of individual private sources. Currently 30% of its total revenue is provided by individual private donors (UNICEF, 2016[35]). WIPO relies almost entirely on private financing, with fees being paid by users of its intellectual property services for patents, trademarks and industrial designs representing about 92% of its total revenue (WIPO, 2016[36]). Lastly, among UN specialised agencies, IFAD is the only international financial institution. As such, it draws its financing from investment income and loan reflows, in addition to member states’ contributions pledged through regular replenishments. In addition, in order to meet the increased need for investments in agricultural development, IFAD has implemented an innovative financial policy tool, which allows to borrow from sovereign states. IFAD received a EUR 300 million loan from the German development bank KfW in 2015. This was used to finance ten projects, equivalent to 19% of the total value of IFAD’s loans and grants approved in 2015. A second loan agreement with KfW was signed in the same year (IFAD, 2016[37]).

While the financing models of UN entities are diverse and so are the opportunities to attract financing beyond DAC countries, some key emerging trends on the UN development system9 as a whole are discussed below.

DAC countries account for the bulk of funding to the UN Development System, but an additional 35% of resources is provided by other sources

Other sources comprise UN member states and non-member states10 excluding the DAC, NGOs and private sector sources, and other multilateral organisations (Figure 2.16). In 2016, DAC countries contributed USD 17.9 billion to the UN Development System. Other sources collectively added USD 9.6 billion to the total. Collectively, at 35%, these other sources account for a share that is far from negligible. Further, some of these sources have increased at a faster pace than the 25% increase recorded by ODA funding in 2011-16. Despite this, the growth in other sources of funding to the United Nations Development System has not radically impacted on the overall weight of DAC countries’ ODA funding in the total resources to the United Nations. This has only minimally decreased, from 67% in 2011 to 65% in 2016. The United Nations Development System reliance on the top ten providers has also remained high and fairly unchanged, with the share provided by the top 10 donors increasing slightly from 56% in 2011 to 58% in 2016. These figures do not change significantly when “local resources” – i.e. funding provided by sovereign states, often developing countries, to implement programmes and projects in their own territory – are included. In that case, the share of funding from DAC countries goes down to 60%.

The expansion in the number of multilateral organisations involved in development, together with a greater differentiation, has increased funding provided to the UN by other multilateral organisations

After DAC countries, the largest source of funding to the United Nations Development System is represented by other multilateral organisations (USD 5.7 billion, or 21% of the total in 2016). These institutions include some large global vertical funds, which have become significant providers to individual countries and other multilateral organisations, which they fund for implementing specific programmes in partner countries. UN entities with a solid field presence have become particularly relevant partners for the implementation of programmes supported by these funds. For instance, in 2016, 18% of financing to UNDP came from vertical funds, such as the Global Environment Facility (GEF), Adaptation Fund, Global Fund to Fight AIDS, Tuberculosis and Malaria, and Green Climate Fund.

In 2016, however, the key driver of the increased funding from other multilateral organisations to the UN Development System was the European Commission. This alone accounted for almost half of all funding from multilateral organisations to the UN Development System (46%), against 25% from global vertical funds and only 3% of international financing institutions (IFIs) (Figure 2.17). The European Union channels about one-quarter of its ODA to multilateral organisations, and the United Nations represent the first multilateral partner. The 2016 spike in EU funding to the United Nations development seems to be linked to the EU response to the humanitarian and refugee crisis response. Funding to UNHCR and WFP more than doubled compared to 2011 figures, and UNHCR, WFP and UNDP together accounted for 64% of EU funding to the United Nations development system. While financing from other multilateral organisations increased, its share in the total has not changed much since 2011, increasing from 20% to 21% in 2016.

UN member and non-member states, excluding the DAC, represent an increasingly important source of funding to the UN development system, largely through cost-sharing arrangements

Funding from UN member and non-member states, excluding the DAC, has been the fastest-growing component of funding to the UN Development System, increasing by 52% between 2011 and 2016. However, collectively, sovereign states excluding the DAC only account for 5% of total funding to the UN Development System, for a total of USD 1.5 billion in 2016. This share reaches 12% when local resources are included (USD 1.9 billion in 2016). Local resources, or cost-sharing, are provided by sovereign states to implement programmes and projects in their own territory. They come almost entirely from sovereign states excluding the DAC (99.97%) and can represent a significant part of the financing to the UN Development System for individual sovereign states. For instance, they represent over 70% of funding to the UN Development System from some Latin American middle-income countries (e.g. Argentina, Brazil, Colombia, Chile, El Salvador), as well as a few low-income African countries (such as Benin, Botswana, Guinea-Bissau, Lesotho). Figure 2.18 shows figures from the largest sovereign states excluding the DAC look like when local resources are included or excluded. Figure 2.19 shows that when local resources are included Brazil becomes the ninth largest provider of funding to the United Nations development system, ranking higher than several DAC countries. For individual UN entities, the increase in these resources has been particularly important. For example, cost-sharing from programme country governments for programmes or projects in their own countries represented 18% of total funding from UNDP in 2016 and has been a key source of growth in overall funding for the organisation (UNDP, 2016[38]).

The 2015 edition of this report (OECD, 2015[21]) provided an in-depth analysis of the scope and evolution of the multilateral engagement of seven largely diverse non-DAC sovereign states (i.e. Brazil, China, India, Saudi Arabia, South Africa, Turkey and the United Arab Emirates) to promote development and extend humanitarian assistance worldwide. The report showed that, despite fluctuations, funding11 to the multilateral development system from these countries increased by 51%12 in 2009-13. In aggregate, the UN system was the single largest recipient of this support, accounting for 44%. The report also highlighted great diversity among the seven countries in terms of the objectives and priorities for increased engagement with multilateral development organisations as well as in terms of the prospects of continued multilateral engagement in the future (OECD, 2015[21]).

2016 figures13 point to a continued increase in financing from these seven countries to the UN development system, which is especially remarkable when local resources are included (+ 204% vs +21% when local resources are excluded). The 2016 figures also confirm that these countries are engaging with the United Nations Development System to different extents and with different objectives and approaches. For instance, increases in funding from Brazil and the United Arab Emirates were mainly due to a rise in local resources. For Brazil, this could be partly linked to the need to enter into cost-sharing arrangements with UN agencies to overcome the lack of a co-operation law necessary to carry out procurement functions and provide services in other countries. China, instead, significantly reduced financing for UN interventions within its territory (-37% in 2011-16) while increasing all other funding to the UN Development System (+80% in 2011-16). This suggests that China’s role as a net provider is growing considerably and that China increasingly partners with the UN development system to extend the global reach of its international co-operation rather than to serve its own development needs. Overall, in the UN context. China is the second-largest provider of finance (excluding local resources), after Saudi Arabia (see Figure 2.20).

Private flows are small in aggregate but significant for individual organisations and initiatives, presenting a suite of challenges and opportunities

Throughout the UN Development System there is a refreshed impetus towards enhanced engagement with the private sector, with a view to leverage private partners’ financial and non-financial assets towards the SDGs. The repositioning of the UN Development System is centred on a shift from UN entities being a source of grant funding to facilitating partner countries’ access to various forms of financing for sustainable development, both public and private (United Nations, 2017[24]). Expanded partnerships with the private sector are part of the integrated financing strategies that the United Nations is promoting in developing countries to maximise resources for SDGs implementation. These shifts are reflected in the strategic plans of UN entities, as it is the case with the Common Chapter to the Strategic Plans of UNDP, UNICEF, UNFPA and UN Women (UNDP, 2018[39]). They build on some organisations’ experience in creating enabling environments for investments and private sector development. However, they will also require significant adjustments in the UN’s business models, skill sets and instruments to be effective (see discussion in Chapter 3).

In terms of direct financial contributions from the private sector to the UN development system, however, private financing has remained a small part of the UN funding portfolio: 9% in 2016, or USD 2.4 billion. This figure includes both the commercial private sector and private philanthropy, and NGOs (as the two cannot be disentangled in the data). Although resources increased by 22% in volume terms between 2011 and 2016, their share in the total has remained constant.

These aggregate trends fail to capture the long-standing importance that private financing has for some specific UN entities, such as WIPO, UNICEF and IFAD, as highlighted at the start of section 2.2.1. They also do not capture the growing importance that private financing is gaining for specific initiatives, programmes or sectors in individual organisations. For UNDP, for instance, while they represent less than 2% of the total funding portfolio, private sector contributions in the past 5 years totalled USD 330 million. In 2017, UNDP received USD 72.5 million in contributions from non-governmental partners (companies USD 32 million; foundations USD 31 million; and NGOs USD 9 million), with a total value 48% higher than in 2016. Examples of specific million-worth initiatives funded by private corporations and hosted at either UNDP, UNESCO and UN Women are presented in a recent article (Seitz and Martens, 2017[34]). In addition, the article points out that partnering with corporations is based on the idea that “the UN and its member states would not be able to solve today’s global problems alone”. “[P]artnerships with the private sector are seen as pragmatic, solution-oriented, flexible, efficient and un-bureaucratic.”

However, there are also significant risks associated with an unconditioned opening to the business sector and corporate philanthropy. Corporations may benefit from partnerships with reputable international institutions in terms of a strong image transfer. There may also be lessened public scrutiny and a “licence to operate” (Ritcher, 2001[40]). Yet, the “dual” aspect of this is a reputation and neutrality risk for the partnering UN. For instance, the International Labour Office (ILO), has been for long criticised over its financial ties with the tobacco industry. In March 2018, countries and workers in the governing body asked it to stop accepting money from the industry for projects to end child labour in the tobacco sector. This request, presented during the 332nd Session of ILO’s governing body, was supported by an ILO Secretariat report (International Labour Office , 2018[41]), which showed the limited effectiveness of ILO partnerships with the tobacco industry to tackle the root causes of child labour in the industry. Tobacco farm workers remain trapped in poverty and illiteracy, continuing to rely on unpaid family labour, including child labour. At the same time, the industry continues its extremely harmful but highly profitable business.

Seitz and Martens (Seitz and Martens, 2017[34]) also highlight that business funding to the UN leads to issues common to other forms of earmarking of resources. These include fragmentation, competition and overlap among entities and misalignment with the priorities defined through the organisation’s governing bodies, to the detriment of the multilateral character of UN operations and of its democratic governance. Therefore, while it is positive that the UN has developed guidelines on co-operation with the business sector (United Nations, 2015[42]), there is still room for improvement. The guidelines could be complemented with additional measures and safeguards to ensure that the benefits of partnerships with the private sector are maximised, while risks are managed and reduced (United Nations Joint Inspection Unit, 2009[43]).

DAC countries and other sovereign states provide an additional USD 9.2 billion beyond their ODA contributions

Besides local resources, there is another part of funding that is not accounted for in ODA statistics relates to the standard setting functions of multilateral institutions (Figure 2.21) Many multilateral organisations have a standard setting role, i.e. they establish norms and standards in their respective areas of expertise. These activities produce benefits at the global level. Such activities are embedded in the 2030 Agenda and referred to throughout the Addis Ababa Action Agenda (AAAA) as contributors to an enabling environment for sustainable development. However, standard setting activities do not comply with the ODA definition.

Therefore, in DAC statistics, contributions to multilateral organisations are counted as ODA in full only if the entirety of the multilateral organisation’s activities are developmental in nature. For multilateral organisations that implement activities that are not developmental, a coefficient of ‘ODAbility’ is applied. This is the case for several institutions in the United Nations Development System, including the Economic Commission for Europe (ODA coefficient: 89%) and the World Tourism Organisation (89%). For some organisations, only a tiny share of funding received is ODAble: e.g. the World Intellectual Organisation (3%) and the World Meteorological Organisation (4%).

In the SDG era, however, this system might be underestimating the support that providers extend to multilateral organisations that advance development enablers, as global standards and norms and other global public goods. A new statistical framework, the total official support for sustainable development (TOSSD), could effectively help fill this gap. It could enhance global tracking of the collective efforts made to advance sustainable development (see Box 2.4).

Box 2.4. Total official support for sustainable development (TOSSD) framework: towards better tracking of support to multilateral organisations in the era of the 2030 Agenda

The TOSSD statistical framework aims to fill key information gaps on resource flows promoting sustainable development. It is being developed by the International TOSSD Task Force, an inclusive group of stakeholders from the international development co-operation and statistical communities. It will include all officially supported resource flows to promote sustainable development in developing countries. It will also include resource flows to support development enablers or tackle global challenges at regional or global levels.

In the current OECD ODA statistical system, 38 international organisations report on their development co-operation activities funded from core contributions from provider countries. This reporting is essential for establishing a complete picture of aid channelled through the multilateral system. However, standard setting activities are not reported on – they do not comply with the ODA definition but rather contribute to sustainable development of all countries by improving global governance. In fact, standard setting activities are not currently captured in any internationally comparable development co-operation statistics. This creates a critical information gap. For example, the ILO reports its development co-operation activities to the OECD. However, this reporting only captures activities that ILO conducts directly with ODA-eligible countries or that benefit mostly ODA-eligible countries. The important work of the ILO on international labour standards, employment policies, or research and knowledge sharing that benefits the global community, and that is key to promoting an enabling environment for sustainable development, is not covered.

Standard setting activities of multilateral organisations will be captured in the development enablers and global challenges pillar of TOSSD. This will contribute to a more complete picture of activities that promote sustainable development and support of the 2030 Agenda.

To operationalise the TOSSD framework, an inclusive list of multilateral institutions will be established to identify the multilateral institutions for which data will be collected. This list will also include organisations that might not conduct activities in TOSSD-eligible countries but contribute to promote enabling conditions for sustainable development and to address global challenges, especially for the global public goods pillar of TOSSD. As a starting point, all multilateral institutions included in the list of ODA-eligible multilateral organisations will be added to the TOSSD list, provided that they commit to report their sustainable development-related outflows to the TOSSD system. The list will be then completed with other relevant organisations at the regional or global level. Multilateral organisations willing to be added to the TOSSD multilateral organisations list will be able to request their inclusion through an opt-in procedure. They will be added once the institution governing TOSSD verifies compliance with the established criteria for inclusion.

The 2030 Agenda for Sustainable Development marks a shift to a universal agenda with far-reaching aspirational goals. The OECD has been working with traditional donors, South-South and emerging providers, multilateral institutions, civil society organisations (CSOs), foundations and the private sector to promote a better monitoring of resource flows in support of the 2030 Agenda. TOSSD is a concrete outcome of these efforts.

Note: For more information, please visit the dedicated website at http://www.oecd.org/dac/financing-sustainable-development/development-finance-standards/tossd-task-force.htm.

2.2.3. Multilateral development banks

MDBs are testing different financial innovations to boost their lending capacity

Multilateral development banks (MDBs) can play a critical role in financing the 2030 Agenda for Sustainable Development and the SDGs. With their financial model, they can extend the reach of development finance in line with the ambitions of the 2030 Agenda. Each “dollar in” of capital results in more than “a dollar out” for development investments. Each dollar managed by MDBs is used to catalyse, mobilise and crowd-in additional funds for sustainable development from other public and private sources.

As for any financing institution, however, the ability of MDBs to scale up lending is dependent on their capital. In recent years, MDBs have increased lending in response to calls from the G20 to help finance counter-cyclical spending and infrastructure, and support the SDGs. However, concerns have been raised that MDBs are reaching their internally defined capital adequacy limits, or would do so if they expanded lending in line with what is needed to achieve the SDGs (Humphrey, 2017[44]). These concerns sparked discussions on the need to recapitalise MDBs as well as on how MDBs could do more with the capital they already have. As discussed in (OECD, 2015[21]), the Asian Development Bank (ADB) pioneered a merger between its soft and hard windows into the overall balance sheet of the bank to optimise its capital resources and boost lending. The higher risk attached to future repayment streams compared with donor paid-in and callable capital led to an increase of the equity-to-loan ratio from 26.9% to 53.6%. Despite this, it was still possible for the ADB to reduce the need for donor contributions from about USD 1.2 billion a year to USD 0.6 billion a year, between the 11th and the 12th replenishments. It also boosted its ability to provide grants and loans from USD13.5 billion in 2014 to USD 20 billion in 2020, as documented in (Manning, 2017[6]). Other measures to enhance the financial capacity of MDBs have been explored. These include: 1) reforming MDB capital adequacy limits; 2) financial engineering to optimise balance sheets of the kinds of exposure exchange agreements, and portfolio guarantees and loan sales; 3) making better use of callable capital (Humphrey, 2017[44]). Besides the ADB and IDA, reforms to boost lending capacity have been implemented by the AfDB, which opened its non-concessional window to the poorest countries. IFAD has also explored options to revise its financing model in order to increase the size of the programme of loans and grants.

A comprehensive quantification and assessment of these innovations and how the financing landscape of MDBs is evolving overall is beyond the scope of this report. However, to exemplify how the importance of donor funding is changing and other sources of financing are gaining prominence, the reminder of this section will focus on the World Bank Group as an illustrative case. The concessional window of the World Bank Group, IDA, is one of the largest multilateral providers of concessional finance (i.e. grants and loans meeting the ODA definition) and the World Bank Group, as a whole, is by far the largest provider when non-concessional finance is also included. What follows draws on the outcomes of the 18th replenishment of IDA, and on the capital increases of IBRD and IFC decided in 2018.

IDA18 marked a small decline in donor resources but an unprecedented reduction in their weight in overall resources

As discussed in section 2.1, the 18th replenishment of IDA, concluded in October 2016, resulted in a record replenishment of SDR1453.5 billion, equivalent to USD 75 billion, to finance projects in the period from 1 July 2017 to 30 June 2020. Interestingly, this record replenishment was achieved despite a slight decline in donor contributions. As documented in (Manning, 2017[6]), in IDA18 the World Bank management achieved its goal of maintaining the level of donors’ contributions stable, on average, in national currency terms. In SDR, this meant a 7% decrease for contributions from DAC members and a 5% decrease from all donors, compared to the previous replenishment (IDA17 in 2013). Among DAC countries, the largest declines were from some of the Nordic countries (Finland: -63%; Norway -33%). Contributions from European donors fell by 11% overall. The United States and Korea, in contrast, increased their contributions (by 8% for the United States and 13% for Korea). While donor contributions fell slightly, the increase in the total replenishment resources size (+54%, discussed below), between the 17th and 18th replenishment led to an unprecedented reduction in the weight of donor contributions in replenishment resources. Donor contributions accounted for 51% of total resources in IDA17 (and 55% on average in IDA15, IDA16 and IDA17) and for 31% in IDA18 (Figure 2.22).

Reliance on the top ten donors also decreased

The reduction in the share of donor contributions in total replenishment resources was accompanied by decreased reliance on the top 10 donors. The list of the top 10 donors to IDA replenishments has been fairly stable over time, with either the United Kingdom or the United States at the top, followed by, in slightly varying order, Japan, Germany, France, Canada, Italy, Sweden, Netherlands; and, depending on the replenishment, either Spain or Switzerland. The share of top 10 donors in the total replenishment resources was 40% in IDA17. The large increase in replenishment resources beyond donor contributions, however, has brought it to less than 30% in IDA18 (Figure 2.23).

Shareholder contributions, excluding the DAC, are growing and China has become the 11^th largest contributor among all shareholders

While in IDA18 resources from DAC countries decreased by 7% compared to the previous replenishment, shareholder contributions excluding the DAC recorded a significant increase (+21%), reaching SDR 1.08 billion. Further, the share of these contributions in total donor resources has steadily increased, but are still a small part of the total (from 1% of all donor resources in IDA15 to 2% of IDA18). Most significant is the increase in resources from China in IDA18. China’s contribution more than doubled, at SDR 428 million. China has contributed to establishing new multilateral institutions – probably as a way to circumvent the slow pace of voice reforms at the World Bank and IMF, as argued by (Callaghan and Hubbard, 2016[46]); (Griffith-Jones, 2016[47]); (Kawai, Morgan and Rana, 2014[48]); (Reisen, 2015[49]). However, China has also gradually changed its approach towards “traditional” institutions and increased its financing to and influence on them (OECD, 2015[21]). Besides the IDA18 replenishment, China’s increased engagement with and influence on the World Bank is apparent in the establishment of the G20 Global Infrastructure Connectivity Alliance and the G20 Initiative in Supporting Industrialization in Africa and LDCs. These initiatives, set out in the context of the Hangzhou G20 Summit and hosted or supported by the World Bank, reflect much of the Chinese thinking and experience. In fact, some argue that they would not have been possible without China (Finance Center for South-South Cooperation, 2017[50]). What it is clear is that they highlight a new and greater influence of China in the World Bank.

India was the second-largest contributor once DAC countries are excluded (SDR 130 million), and the 19th largest donor overall. Its contributions did not increase significantly, however, remaining in line with what India provided in the previous replenishment. The other three BRICS – Brazil, Russia and South Africa – all decreased their contributions compared to the previous replenishment. Indonesia’s contribution recorded a four-fold increase, making of Indonesia the fifth largest contributor among shareholders excluding DAC countries (Figure 2.24).

Loans from providers helped mobilise more financing, but to a modest extent

While shareholders have traditionally provided resources to IDA in grant form, IDA17 introduced the option to make concessional loans. In IDA17, five countries – China, France, Japan, Saudi Arabia and the United Kingdom – did this, extending SDR 3.3 billion in total, roughly equivalent to SDR 0.6 billion in grant-equivalent terms. This option interested donors for different reasons. For the United Kingdom, it allowed to tap into funds considered as capital rather than recurrent funding of the DFID. France and others were attracted mainly because the national budget would only have to bear only the cost of subsidising the interest on government borrowing and not the full cost of the contributions (Manning, 2017[6]). The possibility of small returns on the loan was also attractive. In IDA18, the provision of loans from shareholders increased to SDR 3.7 billion, or SDR 0.9 billion in grant terms. Five providers used this option: Japan, the United Kingdom, France, Belgium and Saudi Arabia. This confirmed continued interest in this option and its usefulness in attracting resources for IDA. However, at 5% of total resources in IDA18, this option is far from a game changer for IDA.

‘Hidden equity’ and debut on capital markets: the real game changer of IDA18

In IDA18, a more significant innovation was the consideration of the stream of future repayments of loans as a real asset, against which additional borrowing could be provided. The stream of future loan repayments was thus, for the first time, treated as equity. This was possible because of a strong track record of regular repayments and economic progress of borrowing countries. The objective of this innovation was to boost lending in line with the ambitions of the 2030 Agenda, against a context of stagnating donor resources.

Unlike the ADB, the World Bank did not merge its concessional lending window, IDA and its non-concessional window, IBRD, including because these are two legally independent institutions (Manning, 2017[6]). Instead, IDA was given a AAA credit rating and allowed to access capital markets with a AAA credit rating. IDA made its debut on the capital markets on 17 April 2018. By the start of the New York trading hours on 17 April, total orders for the bond had reached USD 4.6 billion from 110 investors in 30 countries. In total, the IDA will be able to borrow up to SDR 15 billion from the market, almost as much as the IDA receives from all of its shareholders in IDA18. This is the main reason why, although donor resources are plateauing, IDA18 achieved the largest replenishment in the history of the institution, as shown in Figure 2.23.

IDA’s access to capital markets will help channel private capital towards sustainable development initiatives, marking the “start of a new and exciting era for impact investing”.15 However, there might be implications for the lending portfolio of IDA. IDA may need to tailor its bond content to the likes of the investors. Capital market financing could also have implications in terms of allocations across countries and the degree of concessionality of IDA’s operations. At this stage, however, these implications are not clear.

IBRD capital increase

In the past five years, within the international community, discussions have intensified on whether MDBs are approaching their limits on lending, defined by internal capital adequacy rules. In particular, some have suggested that MDB’s narrow capital base and conservative loan approach was constraining their ability to increase lending enough to achieve the SDGs (Gottschalk and Poon, 2017[51]). With capital increases to MDBs being considered unlikely even by close and expert observers, e.g. (Humphrey, 2017[44]) and (Gottschalk and Poon, 2017[51]), alternative reforms to boost MDB’s lending capacity have been explored or implemented. These include the merger of the ADB concessional window discussed above. Since 2013, the G20 has been calling on MDBs to work through their boards to optimise balance sheets, to increase lending without substantially increasing risks or damaging credit ratings. Since then, the World Bank has revised its approach to capital efficiency, allowing total lending capacity to increase by over USD 50 billion. Three MDBs developed a proposal for an MDB exposure exchange, which would result in an additional USD 12 billion in lending capacity for the AfDB alone (G20, 2015[52]).

Against predictions, in April 2018, World Bank shareholders endorsed a USD 13 billion paid-in capital increase (i.e. USD 7.5 billion paid-in capital for IBRD and USD 5.5 billion paid-in capital for IFC). They also supported a USD 52.6 billion callable capital increase for IBRD. These increases will take the average annual capacity of the World Bank Group to nearly USD 100 billion between FY19 and FY30 (World Bank Group, 2018[26]). This is almost double its current lending levels, which totalled USD 59 billion in 2017. The reform packages associated with these capital increases have three main implications:

Increased rates charged by IBRD to higher-middle-income countries: Together with a target to channel 70% of IBRD resources to lower-income IBRD countries, this should in principle increase resources available to lower-income countries. The agreement also establishes new pricing guidelines, under which richer countries are charged a higher maturity premium (i.e. longer it takes them to pay back the loan, the more they pay) to incentivise countries pay back their loans faster, creating capital for those who need it more. This would discourage higher-middle-income countries from excessive borrowing and lead to a gradual decline in lending to China; although the reform does not hold any specific provisions about reducing lending to China. The new pricing guidelines also correct the fact that IBRD currently charges borrowing countries, from recent IDA graduates to relatively rich countries, all the same rate.
Revision of voting shares: The agreement will lift China’s shareholding in the IBRD to 6.01% from 4.68%. The United States will record a negligible dip in its share to 16.77%, from 16.89% (OECD, 2018[53]) and retain its veto power over IBRD and IFC decisions. Other large shareholders have agreed to minor reductions in their percentage shareholding in the IBRD, while China’s increase corresponds to a rise by one-third, to rebalance extreme underrepresentation.
Graduation and global public goods: No substantial changes to IBRD graduation rules have been introduced. Graduation will thus remain a consultative and voluntary process. The package strengthens the World Bank Group’s support for global public goods, to respond to the interests of middle-income members of the World Bank and of those who want to see the institution tackle important global challenges more effectively. It also offers enhanced support to member countries during times of financial crisis.

2.2.4. Global vertical funds

Different funding models exist among global vertical funds, such as the Global Alliance for Vaccines (GAVI), the Global Fund for AIDS, TB and Malaria (Global Fund), and others. The Global Fund operates on a “grants-in-grants-out” model like the United Nations but has replenishment cycles like MDBs. It mainly relies on public resources. GAVI too raises resources through replenishments (every 5 years) but it has a “mixed” financing model, where private finance accounts for a greater share of the total (24%) (GAVI, 2018[54]). GAVI’s greater access to private finance mainly hinges on two innovative finance mechanisms at the core of its financing model: the International Finance Facility for Immunisation (IFFIm) and the Advance Market Commitment (AMC). The IFFIm uses long-term pledges from donor countries to sell “vaccine bonds” in the capital markets, making large volumes of funds immediately available for GAVI programmes. GAVI has also piloted the AMC for pneumococcal vaccines: donors commit funds to guarantee the price of vaccines once they have been developed. These financial commitments provide vaccine manufacturers with an incentive to invest in vaccine research and development, and to expand manufacturing capacity. In exchange, companies sign a legally binding commitment to provide the vaccines at an affordable price to developing countries in the long term. The 2015 edition of this report focused on GAVI’s 2015 replenishment outcomes (OECD, 2015[21]). The following discussion takes the Global Fund and its 2016 replenishment as an illustration of the evolution of various sources of financing.

The Global Fund mainly relies on public funds, with DAC countries accounting for 88% of total replenishment resources

The last replenishment of the Global Fund was concluded in September 2016 with donor pledges totalling USD 12.3 billion, in line with the management’s objective. This outcome represented a slight increase compared with the USD 12.0 billion achieved with the previous replenishment in 2013. Resources will be used to fund activities in 2017-19. In general, the Global Fund is primarily financed by the public sector, which accounts for about 95% of total funding. The remaining 5% comes from the private sector, private foundations and innovative financing initiatives. The outcome of the 2016 replenishment confirms a similar split. Public sources – i.e. country donors and the European Commission – collectively pledged almost the entire amount: USD 12.03 billion (or 94%), and private donors accounted for the remaining 6%. Among sovereign donors, DAC countries accounted for 88% (Figure 2.25).

The European Union accounts for a significant share of resources

The European Commission pledged USD 593 million, accounting for 5% of the total. Therefore, although this report traditionally treats the EU institutions as “recipients” of multilateral aid, its role as a major donor to other multilateral organisations emerges clearly from the magnitude of the European Commission’s contributions to the Global Fund, as well as to the United Nations Development System (see Section 2.2.2).

Pledges of 18 sovereign states, excluding the DAC, account for less than 1% of the total

Sovereign states excluding the DAC pledged USD 103 million, roughly equivalent to almost 1% of the total. The largest funder in this group was India (USD 20 million), followed by China (USD 18 million) and Saudi Arabia (USD 15 million). Overall, BRICS accounted for 0.3% of all Global Fund replenishment resources, Middle Eastern countries for 0.02%, and remaining ten sovereign states, mainly African countries, for another 0.2%.

Among private donors, the Bill and Melinda Gates Foundation is by far the largest contributor, but the number and range of contributing actors is increasing

Among private donors, the Bill and Melinda Gates Foundation has been, since the start, the largest provider to the Global Fund. In the 2016 replenishment, it pledged USD 600 million (Global Fund, 2016[55]), an amount by far greater than pledges by any other private donor. It was also more than what was pledged by most sovereign donors (including DAC countries); only the United States, United Kingdom, Germany, France and Japan made larger pledges. Besides the Bill and Melinda Gates Foundation, however, an expanding range of private actors have contributed to the 2016 replenishment. These include 12 foundations and corporations from disparate parts of the world, and a group of anonymous private donors.

2.3. Lessons for more effective multilateral co-operation in the era of the 2030 Agenda

Ensure adequate levels of financial support to multilateral institutions in ways that enable the effective functioning of the multilateral system

DAC countries continue to direct a stable share of their ODA resources to the multilateral development system. ODA resources to and through multilateral institutions reached USD 63 billion in 2016. As the founders and shareholders of the multilateral development co-operation system, sovereign states have a responsibility to ensure that the system has enough resources to carry out its mission and effectively contribute to the 2030 Agenda.

Current trends in large multilateral providers and mistrust in the shared benefits of international co-operation are leading countries to pursue policy goals through unilateral or ad hoc measures. This could translate into reduced support and financing for the multilateral development co-operation system in the near future, putting at risk the benefits that multilateral institutions can deliver for modern societies and the achievement of sustainable development globally. For a strong and effective multilateral development co-operation system that can deliver on the 2030 Agenda, sovereign states need to commit to providing appropriate financial support.

Supporting multilateral organisations to adopt safeguards to balance the need to broaden the funding base and to accept resources that are aligned with the institutions’ mandates

Besides sovereign states, other sources of financing – such as private investors, corporations, philanthropy and multilateral organisations – are becoming more significant, although the nature and scope of the resources they provide can vary significantly across multilateral organisations. With stagnating donor resources and substantial financing needs to achieve the 2030 Agenda, broadening the funding base is a priority for most institutions.

Not all sources of funding, however, are the same. Some finance, especially from private corporations and private philanthropy, may come as new forms of earmarking of funds, contributing to piecemeal interventions or skewing allocations towards specific groups of countries, or away from the multilateral organisation’s main institutional priorities. Therefore, there is a need to strike a balance between the quest for greater volumes of funding necessary to meet the needs of the 2030 Agenda and the need to ensure that this funding will not skew allocations towards groups of countries or priorities away from the most vulnerable people and countries. Sovereign states should support multilateral organisations to adopt safeguards so that public resources are used in line with the mandates of the organisations. The UN-developed guidelines on co-operation with the business sector (United Nations, 2015[42]) provide a good example of this. These guidelines could be complemented by additional measures to ensure that the benefits of partnerships are maximised, while risks are managed and reduced.

Annex 2.A. The growing role of China in the multilateral development system

An historical perspective of China’s engagement with multilateral institutions

In the current phase of mistrust in the benefits of globalisation and in the efficiency of the multilateral system, China is positioning itself as a balancer of a multipolar international system by emphasising the role multilateral institutions play in addressing global challenges. President Xi Jinping’s speeches in Davos (Xi, 2017[56]) and at the 2018 Boao Forum for Asia (Xi, 2018[57]) stress this.

China’s own economic and social development and, consequently, its engagement to support other countries’ development efforts, have progressed over the years. From 1990 to 2014, more than 65.2% of the Chinese population has been lifted above the international poverty line (USD 1.90/day, 2011 purchasing power parity).16 China still faces major development challenges, such as an ageing population, over-capacity of low value-added sectors and environmental problems (Wei, 2016[58]). However, it is becoming an increasingly relevant actor in the development co-operation architecture, both bilaterally and through the multilateral system.

With a long-standing foreign co-operation programme, despite favouring bilateral channels, China has engaged in the multilateral system since the early 1970s. It joined the main agencies of the UNDS, such as UNDP, WHO and United Nations Educational, Scientific and Cultural Organization (UNESCO), in 1972. Despite initial reluctance to join international financial institutions with a strong Western imprint, China restored its seats in the International Monetary Fund (IMF) and the World Bank Group in 1980. This served the purpose of obtaining the funding and technology needed to build up its economy (Xiong, 2017[59]). China’s multilateral co-operation has since expanded at the regional level. China joined the African Development Bank (AfDB) in 1985 and the Asian Development Bank (ADB) in 1986. In 2005, China entered what Xiong called the “phase of expansion of China’s multilateral foreign aid”. This increasingly pragmatic approach towards multilateral development co-operation, marked a sizeable increase in Chinese multilateral funding, which saw contributions to several multilateral organisations.17

Moreover, while foreign co-operation is traditionally considered a sensitive topic, China has recently shown an openness to discussing its development co-operation programme. After a first White Paper on Foreign Aid (Information Office of the State Council of The People's Republic of China, 2011[60]), with limited focus on multilateral co-operation efforts, the following White Paper (Information Office of the State Council of The People's Republic of China, 2014[61]) clearly signalled the importance that China attributes to the multilateral development system. It disclosed data on its multilateral contributions, acknowledging multilateral institutions’ comparative advantage in leveraging bilateral efforts. Further, it emphasised willingness for dialogue and collaboration with “traditional donors” and OECD.

China’s growing leadership in the multilateral sphere

The year 2015 arguably marked the beginning of China’s enhanced presence and growing leadership in the multilateral development landscape.

China has lately shown an increasing commitment towards the responsibilities and duties stemming from its participation in the global multilateral system. In 2015, after endorsing the ambitious 2030 Agenda, China reported its willingness to align its own development strategy to the SDGs (Ministry of Foreign Affairs of the People's Republic of China, 2015[62]). It later demonstrated its commitment by publishing the National Plan on the Implementation of the 2030 Agenda (Ministry of Foreign Affairs of the People's Republic of China, 2016[63]) and presenting a voluntary national review of the SDG implementation (Sustainable Development Knowledge Platform, 2016[64]).

Furthermore, 2015 saw the establishment of new multilateral institutions under the leadership of China, such as the AIIB and the BRICS’ New Development Bank. The AIIB has gathered support from both developing and advanced economies to finance infrastructure investments in Asia. China’s concern over the slow evolution of the governance structure of existing international financial institutions has been seen as prompting the Chinese impetus to launch it [ (Dollar, 2015[65]), (Callaghan and Hubbard, 2016[46]), (Reisen, 2015[49]), (Bob et al., 2015[66]) and others]. Similarly, (Xu, 2017[67])claims that the founding of the AIIB is “one quintessential example of China’s quest for influence”. The impact of AIIB on the multilateral system is not yet fully clear, including whether it will complement or challenge the current multilateral development architecture. The creation of the AIIB could encourage the proliferation of multilateral channels. According to (Dollar, 2015[65]), it could lead to increased efficiency of development banks due to competition and a more integrated Asia-Pacific economy. The AIIB Articles of Agreement (Asian Infrastructure Investment Bank, 2015[68]) state that “[the AIIB] will complement the existing MDBs”. Some scholars [ (Gu, 2017[69]), (Hanlon, 2017[70])] have argued that the AIIB seems to be playing a complementary role in the current multilateral development finance architecture. Collaboration between the AIIB with the World Bank, including through project co-financing18, suggests that the AIIB is collaborating with traditional institutions rather than bypassing them.

The Belt and Road Initiative (BRI), a major Chinese initiative aimed at promoting trans-continental connectivity and economic integration, was probably the main reason behind the creation of the AIIB. (Ruta, 2018[71]) suggests that there are several challenges to the implementation of the BRI and thus to closing the global infrastructure gap and achieving greater integration. These challenges include questions of transparency about public procurement, as well as environmental, social standards and corruption risks associated with large infrastructure projects. In addition, there are macroeconomic risks stemming from the potential increase of sovereign debts to unsustainable levels. In this regard, (Hurley et al., 2018[72]) have identified potential BRI borrower countries at particular risk of debt distress. They suggest that multilateral partners should encourage good policies and procedures that would improve the BRI’s development impact as well as debt sustainability. To implement the BRI, China could consider partnering with multilateral institutions to benefit from their expertise in infrastructure projects’ design and implementation. It has already signed Memoranda of Understanding with some [ (World Bank Group, 2017[73]), (European Investment Bank, 2017[74])]. Some UN high-level officials [the Secretary-General (United Nations, 2017[75]), the President of the United Nations General Assembly (UNGA) (United Nations, 2018[76])] have emphasised the potential beneficial impact of the BRI for the achievement of the SDGs and for a “multilateral renaissance”.

Some hard facts on the evolution of Chinese contributions to multilateral organisations

United Nations Development System

According to (Xiong, 2017[59]), China considers the UN a crucial platform for enhancing the “South-South co-operation” and promoting “North-South dialogue”.

Over the 2011-2016 time period, Chinese total contributions for operational activities to UN funds and programmes (excluding local resources) have increased steadily. An exception is an 11% drop in 2012, possibly explained by the slowing down of Chinese gross domestic product (GDP) growth in that same year. The highest increase in Chinese contributions (+42%) was in 2013 and an all-time high was reached in 2016, at approximately USD 146 million (Annex Figure 2.A.1, left panel). The largest recipient UN agencies have been the WHO, UNDP and FAO.

Both China’s core and non-core funding have shown an upward trend over 2011-16. Growth in core resources has accelerated since 2013 (at +24% per year on average), although they dropped slightly (-6%) in 2016. Non-core resources show more volatility but, on average, have grown at a faster rate (21%) than core resources (12%) in 2011-16. The all-time high reached in 2016 was entirely due to the increase in non-core funding, which more than offset the decrease in core funding. However, overall core resources (excluding local resources) have accounted for the bulk of China’s funding to the United Nations (68% in 2016). This is largely above the equivalent figure for DAC countries, where, on average in 2016, core funding accounted for 31% of total funding to the UNDS.

Further, China provided the UNDS with an additional USD 156 million in local resources over the 2011-16 period. On average, local resources represented 17% of China’s total contributions to the UN, and have significantly decreased over time. In 2016, the share of local resources to total resources for China (13%) was much lower than the average for all BRICS countries (31%), where local resources increased over time. This suggests that China is increasingly using the multilateral development system to extend the reach of its development co-operation, rather than to foster development in its own territory (Annex Figure 2.A.1, left panel).

The World Bank Group

China’s contributions to the World Bank Group comprise core contributions to IDA as well as earmarked contributions to several trust funds.19 Cumulative contributions over the 2011-2017 period (excluding IDA replenishments) amount to USD 598 million. Core contributions to IDA over the period account for 79% of the total and are increasing over time. Earmarked contributions were modest until 2016, when they reached an all-time high of USD 65 billion, mainly due to the Chinese contribution to a World Bank single-donor trust fund for poverty reduction (World Bank, 2015[77]). Moreover, China doubled its contribution to IDA replenishments, from approximately USD 301 million in IDA17 (2013) to USD 602 million in IDA18 (2016). See Annex Figure 2.A.1, right panel.

China’s steps to enhance its engagement in the multilateral development system

The previous edition of this report highlighted some organisational, economic and political limitations on greater engagement of China and other emerging markets in multilateralism (OECD, 2015[21]). Given China’s growing role in the multilateral development system, and in order to be able to better engage with multilateral partners, China is taking steps to reform its institutional structure for development co-operation.

At present, China’s management system for development co-operation is multifaceted, involving up to 40 agencies and institutions. This makes the management of development aid rather complicated, and the management of multilateral contributions are more spread out than the bilateral contributions (Xiong, 2017[59]). Several Chinese ministries and commissions have been responsible for matters involving multilateral organisations so far, with a fragmented approach (Thier et al., 2018[78]). Nevertheless, the state press agency has reported that China is planning to establish a national aid agency. This aims to improve the strategic planning and co-ordination of foreign aid and to “better serve the country’s overall diplomatic layout and the BRI” (Xinhua, 2018[79]). As (Thier et al., 2018[78]) remark, a consolidated and centralised aid agency headed by a senior official is expected to make Chinese aid more effective, more transparent and more coherent, and should thus be welcomed “with open arms”. Furthermore (Thier et al., 2018[78]) argue that the new agency could better manage the risks of engaging in fragile contexts. This is important as the BRI involves some Middle Eastern countries that are conflict affected, such as the Syrian Arab Republic, Yemen and Afghanistan (Belt and Road Portal, 2018[80]).

China’s ambition is to take on a greater leadership role in regional affairs and global economic governance. This has seen the country increase its support to the evolving multilateral system, particularly in the international development arena. Whether China will manage to play such a role and to fulfil the responsibilities and duties stemming from multilateral donorship is yet to be seen. A lot also depends on other players’ stances. According to (Gottschalk and Poon, 2018[81]), China’s recent experience in the multilateral development finance architecture suggests that financial resources are not all that matters. Political will and innovative ideas are crucial, and China has shown this with AIIB’s innovative lending model for infrastructure finance. “Traditional” donors and institutions need to increase efforts to scale-up development finance and close funding gaps. They should take action to ensure that all actors follow global norms, such as transparency of operations and respect for financial, environmental and social standards.

Annex 2.B. Non-DAC countries reporting to the OECD Creditor Reporting System: An overview of contributions to the multilateral development system

Several countries beyond the DAC are becoming increasingly important players in the multilateral development finance landscape. Although they represented a small share (10%) of the ODA reported to the OECD Creditor Reporting System in 2016, they have greatly expanded their development co-operation recently, as well as their use of the multilateral system for development purposes.

Currently, 20 countries20 beyond the DAC (henceforth referred to as “reporting countries”) report data on their ODA-like flows21 to the OECD Creditor Reporting System. However, this analysis considers 18 of the reporting countries, over the 2015-16 period, due to partial data coverage22. Total ODA disbursed by these reporting countries is on an upward trend: from USD 11.3 billion in 2015 to 15.6 billion in 2016 (+ 38% in real terms).

The reporting countries use the multilateral development system to different extents (see Annex Figure 2.B.1, right panel). Eastern European and Central Asian countries extend over 60% of their ODA through the multilateral system, whereas other donors (e.g. Kuwait, Turkey and the United Arab Emirates) mostly rely on bilateral channels.

Although, the reporting countries accounted for only 3% of the total funding to the multilateral development system (from all reporting providers, including the DAC) in 2016, their support for multilateral organisations is increasing. They almost doubled their funding to ODA-eligible multilateral organisations: from approximately USD 836 million in 2015 to USD 1.7 billion in 2016. Russian Federation (henceforth referred to as Russia), Turkey, the United Arab Emirates and Thailand recorded the largest absolute increases, collectively accounting for 78% of the increase in multilateral funding from the reporting countries in 2016.

Throughout the 2015-16 period, among the reporting countries, Russia, Turkey and Romania were the largest three providers to multilateral organisations, followed by the United Arab Emirates, Thailand and Israel (Annex Figure 2.B.1, left panel). The reporting countries mainly extended core contributions to multilateral organisations, with amounts corresponding to 89% of their total use of the multilateral system. The largest provider of earmarked contributions was the United Arab Emirates, earmarking USD 140 billion to multilateral organisations in 2016, mostly to UN funds and programmes (Annex Figure 2.B.1, right panel).

Among the clusters of ODA-eligible multilateral organisations considered in this report, in 2016 regional development banks were the largest group receiving core and non-core ODA contributions from reporting countries (i.e. USD 661 million). Among the various regional development banks, the AIIB stands out in terms of volume of funding from the reporting countries (USD 358 million). Turkey, Thailand, Israel and Azerbaijan were the only donors among the reporting countries to provide the start-up funding needed for the AIIB to build up its capital. UN funds and programmes, together with other UN bodies, are the second-largest group of multilateral organisations receiving ODA contributions from reporting countries, collectively receiving USD 362 million, mostly by the United Arab Emirates and Russia. United Nations Development Programme (UNDP), the United Nations Relief and Works Agency for Palestine Refugees in the Near East, World Food Programme (WFP), WHO and UNICEF are the UN entities receiving the largest ODA contributions from the reporting countries’. Further, European Union institutions are the third-largest group of multilateral organisations receiving contributions from reporting countries. It received USD 325 million, mainly from Romania, Lithuania, Croatia, Bulgaria and other Eastern European countries. Finally, the reporting countries channelled USD 169 million to the World Bank Group and USD 171 million to other multilateral organisations (Annex Figure 2.B.2).

References

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Notes

← 1. The full list of multilateral organisations that are eligible for ODA resources is publicly available, together with the eligibility criteria at: http://www.oecd.org/dac/stats/annex2.htm.

← 2. .New financial regulations authorise the European Commission to set up and manage European trust funds under an agreement concluded with other donors. These trust funds are designed to mobilise various sources of EU financing and to collect contributions from the member states and from donors from non-member countries. The European Commission, Germany, France and the Netherlands set up the first European Union Trust Fund. The aim of this is to promote the stabilisation and reconstruction of the Central African Republic.

← 3. Their legal basis was established in 2013 with the adoption of Regulation (EU, Euratom) No 966/2012 on the financial rules applicable to the general budget of the Union.

← 4. These are: 1) the EU Regional Trust Fund for the Central African Republic (Bêkou Trust Fund) established in July 2014; 2) the EU Regional Trust Fund in response to the Syrian crisis (Madad Fund) in December 2014; 3) the EU Emergency Trust Fund for stability and addressing root causes of irregular migration and displaced persons in Africa, established in November 2015; and 4) the EU Trust Fund to support the implementation of the peace agreement in Colombia in December 2016. The European Union has also established the Facility for Refugees in Turkey.

← 5. These are Spain and Portugal.

← 6. Data for the United Nations development system was kindly provided by UN/DESA. Data for IDA18 was drawn from (Manning, 2017[6]). Data on the Global Fund was drawn from the statistical data available on the organisation’s website: https://www.theglobalfund.org /media/1504/replenishment_2016conferencepledges_list_en.pdf?u=636488964230000000.

← 7. This finding mainly refers to multilateral development systems that provide concessional finance.

← 8. This percentage excludes local resources.

← 9. This analysis draws from data in the statistical annexes on funding data of the United Nations Secretary General’s reports on the implementation of the QCPR, covering the years 2011-16. Statistical annexes for individual years are publicly available online: https://www.un.org/ecosoc/en/node/1158673.

← 10. UN non-member states include: Anguilla, Aruba, Bermuda, British Virgin Island, Cayman Islands, Faroe Islands, French Guiana, Monserrat, Niue, St. Helena.

← 11. These contributions were calculated applying the ODA definition to allow for a comparison with funding from DAC members.

← 12. This figure refers to a nominal increase as it is calculated on current prices.

← 13. These figures are drawn from the Statistical annex on funding data of the 2018 Report of the Secretary-General (A/73/63 - E/2018/8) available at: https://www.un.org/ecosoc/en/node/1158673.

← 14. The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. The value of the SDR is based on a basket of five currencies: the US dollar, the euro, the Chinese renminbi, the Japanese yen and the British pound sterling.

← 15. Jes Staley, Barclays Group Chief Executive Officer, stated this during an interview on IDA’s debut on the capital markets, as reported by the World Bank press: http://www.worldbank.org/en/news/press-release/2018/04/17/ida-makes-historic-capital-market-debut-with-inaugural-usd-1-5-billion-benchmark-bond.

← 16. According to World Bank Poverty and Equity data.

← 17. A USD 30 million contribution to the Asian Development Fund and a USD 20 million contribution to the ADB Regional Cooperation and Poverty Reduction Fund in 2005 (Asian Development Bank,(n.d.)[82]), the first-ever contribution to an IDA replenishment with a USD 30 million contribution to IDA15 (2007) (Freeman, 2015[83]), a USD 30 million contribution to a FAO trust fund (Food and Agriculture Organization, 2009[84]), and the first-ever contribution to the WTO Aid for Trade Initiative, after China’s accession in 2001 (Permanent Mission of China to the WTO, 2011[85]).

← 18. More information on the collaboration between the AIIB and the World Bank in co-financing projects are provided in Chapter 3.

← 19. Earmarked contributions include funding to: IBRD/IDA/IFC trust funds, the Knowledge for Change Program, the South-South Experience Exchange Facility, the Global Infrastructure Facility and the China World Bank Group Partnership Facility.

← 20. The 20 countries beyond the DAC that report their data on financial flows that qualify as ODA to the OECD are: Azerbaijan, Bulgaria, Chinese Taipei, Croatia, Cyprus, Estonia, Israel, Kazakhstan, Kuwait, Latvia, Liechtenstein, Lithuania, Malta, Romania, Russia, Saudi Arabia, Thailand, Timor-Leste, Turkey and the United Arab Emirates. See Notes 2, 3, 4, and 5 in Figure 2.B.1.

← 21. ODA-like flows include both financial flows and technical assistance.

← 22. Even though Timor-Leste reports data on its ODA-like flows to the OECD Creditor Reporting System, in 2015 Timor-Leste did not report data on its multilateral contributions, and thus it could not be considered in the analysis. Similarly, granular data on multilateral contributions for 2016 for Saudi Arabia is not available.

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