Introduction

The annual Financing the UN Development System report prepared by the Dag Hammarskjöld Foundation and the United Nations Multi-Partner Trust Fund Office (MPTFO) has increasingly become the ‘go to’ report for those wanting to better understand trends in the overall financing of the UN System. It also provides key insights into development financing policy issues for the broader multilateral community.

However, one challenge with the annual report (as produced over the last eight years) is the fact that it is based on actual expenditures for two years prior. This means that there is always a lag between knowing what the exact amounts of financing received by the UN Development System (UNDS) are (including Official Development Assistance, ODA) and the current commitment reality. This makes it very challenging to gain a more immediate sense of what the UNDS’s real financial situation is – especially when it appears increasingly fragile at this time of global development disruption and ‘polycrisis’.

The Financing the UN Development System reports try to balance reliable time series financial data in Part One with topical substantive contributions in Parts Two and Three. Thanks to many contributing countries transparently publishing their current ODA – combined with an analysis of preliminary aggregate ODA figures for the year before and new data sources – it may be possible to shorten the current time lag so as to add real-time relevance to some key policy discussions.

Preliminary 2022 ODA figures

As noted, this challenge can be partially mitigated by the fact that the Organisation for Economic Co-operation and Development (OECD) is able to release the aggregate figures for overall ODA allocations in 2022 by mid-April 2023. At first glance, it is quite striking, as foreign aid from official donors rose in 2022 to an all-time high of US$ 204 billion – a 13.6% increase from US$ 186 billion in 2021.¹ Yet, if one scratches the surface, it is clear that much of this increase was due to a sharp rise in spending on the domestic costs of processing and hosting refugees within donor countries to US$ 29.3 billion, or 14.4% of ODA, in 2022 – a considerable jump from US$ 12.8 billion in 2021. When domestic donor expenditures on refugee costs are excluded, then ODA in 2022 rose by just 4.6% in real terms compared to 2021 ODA.² Several donors reported significant increases in aid given in 2022, but once spending on in-donor country refugee costs was taken into account, many of these – including Denmark, Italy, Sweden and the United Kingdom – provided less ODA than in 2021.³

Another key element making up this increase was aid to Ukraine, which included US$ 1.8 billion in humanitarian aid. If one excludes ODA to Ukraine, along with domestic spending on refugees in donor countries, then ODA fell by 4% between 2021 and 2022. In addition, there was much slower ODA growth for low-income countries, while ODA to sub-Saharan African countries dropped by 7.8% in real terms. This is an issue of concern given the erosion of trust between many African countries and Western donors since the onset of the COVID-19 pandemic.⁴

Although these figures do not yet enable a breakdown of how much multilateral ODA went to the UNDS in 2022, the aggregate figures reveal that there may indeed have been a decline. While contributions to the core budgets of international organisations were stable in 2022, their share of total ODA fell to 25%, from 30% in previous years.5 The fact that both the African Development Fund and the Global Fund to Fight Aids, Tuberculosis and Malaria enjoyed record replenishment rounds in 2022, combined with the stronger bilateral component of ODA in 2022, makes it likely that there was a decline in multilateral ODA going to the UNDS in 2022. That said, it should be noted that only a portion of UNDS earmarked funding comes from ODA.

2023 – a coming perfect storm?

If the reality of 2022 ODA figures were indeed different than the headline, the picture for 2023 ODA, and especially 2023 core contributions to the UNDS, is an even more worrying one. While the two largest contributors at the top of the league table – the United States and Germany – appear to have maintained their levels, several other donors that traditionally provide significant financing are cutting back considerably.

For example, the UK announced in early April 2023, that that around £1.5 billion (US$ 1.8 billion) will be cut from the Foreign, Commonwealth and Development Office’s (FCDO’s) portion of the aid budget next year (2023/24), due to extensive spending by the Home Office on the domestic costs of hosting refugees – which the UK government points out counts as ODA under OECD rules.⁶ This is the second year running that FCDO’s aid budget will be almost 20% lower than planned, despite an improving economic situation. In terms of 2022 expenditures, UK ODA flows to multilaterals decreased by 10% to its lowest level in four years, while refugee costs in 2022 were at an all-time high, accounting for almost 29% of all ODA costs – a huge increase from 2021, when it was 9.2%.⁷

There are other signs of significant donor distress. The new government in Sweden has scrapped its longstanding 1% of national income target for foreign aid, making signifi-cant cuts to the aid budget and announcing a downward trajectory towards 0.7%. This includes plans to reduce aid by SEK 7.3 billion (US$ 670 million) in 2023 and a further SEK 2.2 billion in 2024. This steep reduction has hit the UNDS in many places, including 25% reductions in voluntary core contributions to most of the UN’s funds and programmes.

In addition, Canada announced an allocation of Can$ 6.9 million for international development for the next fiscal year (2023/24) – a 15% drop from 2022. Many Canadian aid advo cacy groups were also alarmed that this year’s budget doesn’t lay out funding plans for future years, nor does it outline how much aid is being sent to Ukraine.⁸ It should be noted that there may be increased allocations later due to political negotiations or increased national economic performance.

While the Norwegian government had originally announced major planned cuts to ODA, after inter-party negotiations the country’s 2023 ODA budget increased marginally by NOK 260 million (US$ 26 million). Importantly, both the Netherlands and Spain have also increased their ODA. That said, such increases do not necessarily translate into greater support for the UNDS. As flagged in the Secretary-General’s 2023 QCPR report, 10 out of 16 donor countries surveyed indicated that they had no plans to increase either the amount or share of their core funding to the UNDS by the end of 2023.⁹

Why is this important?

World Bank reform and minimising unintended financing consequences

So why is having more up-to-date projections for overall ODA, and especially 2023 multilateral ODA commitments to the UNDS, so important? First, while shareholder and international attention in 2023 has rightly been focused on World Bank reform (the ‘evolution roadmap’) as well as the need to significantly scale up spending by the World Bank and other multilateral development banks (MDBs) on both poverty reduction and climate action, it is critically important that any accompanying financing decisions be taken using a broader, holistic analytical perspective so as to minimise any unintended consequences.

Although the World Bank has the potential to play a more outsized role, it is critical that such funding decisions be taken in an environment where decision-makers also assess the substantive comparative advantages of various parts of the multilateral system and see what makes the most sense in terms of overall complementarity. In other words, increasing resource flows to one set of players in the multilateral development system in today’s tight financial environment has repercussions, not only for the system as a whole, but for other sets of players, such as the UNDS. To the greatest extent possible, this needs to be anticipated and discussed.

For example, any increase in International Development Association (IDA) support and its incumbent legal obliga-tions would inevitably affect the amount of multilateral ODA available to the UN. Hence, it is critical that financing decisions are made by shareholders and Member States with their ‘eyes wide open’.

In the end, the Spring Meetings in April 2023 concluded with major shareholders, led by the US, wanting to see the World Bank stretch its existing balance sheet as much as possible before considering any capital increase. This was a common position amongst G7 countries in particular, which were ‘concentrating on the idea that the World Bank needs to spend better before it gets more money’.¹⁰

As outgoing World Bank president David Malpass indicated, under this scenario, the World Bank will be able to lend ‘up to’ US$ 50 billion more over the next decade by squeezing out additional lending to lower-income countries without damaging its AAA credit rating.¹¹

This being said, the issue of a sizeable increase will undoubtedly come up again early in the term of new World Bank president Ajay Banga. As Mark Malloch-Brown – president of the Open Society Foundations and former UN Deputy Secretary-General, UNDP administrator and World Bank vice-president – cautioned shareholder nations, ‘you can dance around but one day, the music will stop, and you’re going to need that capital increase because you’re never going to get to match the scale of need and ambition without one’.¹² There will also most likely continue to be calls for an increase in IDA support; while it’s not clear what the scale or extent of this would be, it will probably happen in some form, which will in all likelihood mean less multilateral ODA to an increasingly financially constrained UNDS.

Ensuring financial support for critical UN normative functions

Second, in addition to looking at broad complementarity across the multilateral system, it is critically important to ensure that key functions provided via the UN – such as its unparalleled convening power, policy support, thought leadership, capacity development, peacebuilding and humanitarian support – are at least adequately funded. This is particularly the case for the UN’s unique potential for normative impact, which has been significantly underfunded for far too long – a recurrent theme in previous Financing the UN Development System reports.¹³

In fact, one overwhelming lesson of the COVID-19 pandemic was the absolute indispensability of the World Health Organization (WHO) – as highlighted by the Multilateral Organisation Performance Assessment Network (MOPAN), scaled-up coordination in the health sector underscored the WHO’s normative and convening role across the multilateral system.¹⁴ Yet, like other key normative functions uniquely performed by the UN, WHO has been starved of core funding the past several years, meaning that it is now seriously overdependent on voluntary earmarked funding despite its critical normative role.

This is why the historic decision taken by the World Health Assembly in May 2022 to increase WHO’s regular (assessed) budget from 16% of its resource base today to 50% by 2030 is such a critical step forward. It is important that similar political attention is given to other critical UN normative functions, such as human rights and gender equality, as well as norms and standards that remain critically undetermined, such as those for identifying and mitigating global artificial intelligence (AI) risks.¹⁵

Global public goods can only be delivered in partnership

Third, global public goods (GPGs) will need to be delivered in partnership – hence, the imperative of making the whole multilateral system ‘fit for purpose’ and maximising compara tive advantages and synergies. As the High-Level Advisory Board on Effective Multilateralism (HLAB) puts it, ‘to start, the World Bank’s shareholders must encourage the Bank to work in conjunction with the United Nations to define a core set of global public goods that would benefit from enhanced and predictable global public investment, coordinated with other MDBs’.¹⁶

As MOPAN highlights, the multilateral system needs to evolve and effectively act on the lessons learned from multilateral organisations’ response to the COVID-19 pandemic in order to address systemic global challenges more coherently.¹⁷ To do so, it is important to consider how we can more strategically invest in GPGs on a much larger scale than in the past – and how to work more effectively together to achieve them.

The World Bank needs the UNDS for ‘going big’ on GPGs – especially at the country level, where the UNDS often has greater access across governments, a critical normative foundation and solid expertise.

Other areas for change

Enhancing real-time transparency

The challenge of better determining real-time donor commitments to multilateral ODA going forward can be partially addressed through enhanced transparency. While databases like the International Aid Transparency Initiative are important for setting global data standards, they are not really accessible to citizens who, for many reasons, want to know their government’s aid commitments. Transparency varies from country to country, as well as between ministries in a given donor country. Also, aid transparency tends to differ systematically according to the kind of implementing agency.¹⁸

To try to help fill this knowledge gap, a new dataset has just been developed: the Citizen Aid Transparency Dataset (CATD) is a unique data collection initiative that measures the transparency of 212 bilateral aid agencies from 37 Development Assistance Committee (DAC) members using only their own websites.¹⁹ It will be important for future Financing the UN Development System reports to access the CATD in order to better map what the current ODA situation may be in a given year.

Reform of ODA reporting and practices

The last two or three years of official ODA allocations have laid bare some policy issues that merit further analysis. In particular, aid advocates have critiqued not only the current system of counting domestic refugee hosting costs as ODA, but also counting the donation of excess vaccines initially procured for the use of donors’ ‘own citizens’, overstating the ‘aid’ element of subsidised loans to low-Part Two — The big picture: International flows income countries, and ‘accounting tricks that mean debt relief can be counted as ODA spending equal to multiples of the original loan value’.²⁰

While DAC members would presumably balk at reopening the longstanding DAC Statistical Reporting Directives that enabled reporting on in-donor refugee costs in ODA, there may be scope for change – especially as such costs were to be an exceptional item in ODA reporting and not a major component, as was the case last year, with US$ 29.3 billion reported as in-donor refugee costs.²¹

Increasingly, there are calls for some form of independent review of DAC members’ current practices. While some feel deeper reform is needed to make DAC ‘fit for purpose’, many acknowledge it will not be easy to wrest away the authority currently enjoyed by the finance ministries of donor countries. Instead, one interim solution proposed is to create a new body consisting of former senior officials from countries that provide finance working in concert with former officials from recipient countries well versed in managing ODA flows, supported by a small secretariat drawing on expertise from think tanks and civil society groups. This new body would both issue a yearly ‘shadow’ report on development assistance soon after official DAC figures are released – ‘real assistance’ – and issue guidance on what any future change in reporting procedures might be.²²

In addition, as the new DAC chairman Carsten Staur has laid out, possible refinements could include: 1) DAC members tightening up agreed reporting to ensure that in-donor costs are only defined as ODA for the first 12 months and that only expenditure for temporary sustenance is reported as ODA; 2) DAC members deciding that reporting of in-donor refugee costs should be additional to planned development budgets, as both Austria and Germany have done in their preliminary 2022 ODA reporting; and 3) DAC members capping in-donor refugee costs at a certain percentage of their total ODA.²³

Finally, DAC members claimed US$ 1.54 billion in vaccines as ODA in 2022, about 0.8% of total aid, with overall COVID-19 pandemic support at about 5% of ODA.²⁴ Of that, only US$ 16 million was for vaccines specifically purchased for least developed countries.²⁵ The OECD-DAC controversially allowed donors to charge donated surplus COVID-19 pandemic vaccines to their aid budgets at higher costs than what they were purchased for.²⁶

Earlier on, wealthy countries were charged with hoarding COVID-19 vaccines and only sharing them when they were no longer needed domestically – often these doses were donated so close to their expiry dates that they were practically unusable.²⁷ It is practices like these that need to be fully acknowledged and addressed if trust in multilateralism and between the Global North and Global South is to be rebuilt.

Conclusion

While ODA is not the only source for financing the UNDS, it is a very important one, especially in the case of core funding. Given the current constrained development financing environment and ongoing discussions on expanding the resource base for poverty reduction and climate finance through the World Bank/MDBs, it will be important that such future discussions on making multilateralism more ‘fit for purpose’ also focus on maximising the assets of the UN including its convening power and unique normative impact.