Official development assistance (ODA) is a term coined by the Development Assistance Committee of the Organisation for Economic Co-operation and Development to measure aid. The DAC first used the term in 1969. It is widely used by academics and journalists as a convenient indicator of international aid flow. It includes some loans.
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The full definition of ODA is:
Flows of official financing administered with the promotion of the economic development and welfare of developing countries as the main objective, and which are concessional in character with a grant element of at least 25 percent (using a fixed 10 percent rate of discount). By convention, ODA flows comprise contributions of donor government agencies, at all levels, to developing countries (“bilateral ODA”) and to multilateral institutions. ODA receipts comprise disbursements by bilateral donors and multilateral institutions.
— OECD, Glossary of Statistical Terms [1]
In other words, ODA needs to contain the three elements:
(a) undertaken by the official sector;
(b) with promotion of economic development and welfare as the main objective; and
(c) at concessional financial terms (if a loan, having a grant element of at least 25 per cent).
This definition is used to exclude development aid from the two other categories of aid from DAC members:
Examples:
If a donor country accords a grant or a concessional loan to Afghanistan it is classified as ODA, because it is on the Part I list.
If a donor country accords a grant or a concessional loan to Bahrain it is classified as OA, because it is on the Part II list.
If a donor country gives military assistance to any other country or territory it is classified as OOF, because it is not aimed at development.
There are normally two ways of looking at the volume of ODA:
As a percentage Sweden is the largest donor among developed countries, and together with Luxembourg, Norway, the Netherlands and Denmark it meets the International Aid Target of dedicating 0.7% of GNP.[3]
World Bank reports that Iraq was the top recipient of development aid in 2005 followed by Nigeria. However, this is due to the significant debt relief deals that were granted to these nations that year - when donor countries write off a portion of a recipient country's debt, it is counted as official development assistance from the donor country.
The OECD reports that in 2009 Africa received the largest amount of ODA, at $28 billion. Of that, $25 billion went to countries south of the Sahara. Asia received the second largest amount at $24 billion. The top ODA receiving countries in order were Afghanistan ($5.1 billion), Iraq ($2.6 billion), Vietnam ($2.1 billion), Sudan ($1.9 billion), Ethiopia ($1.8 billion). [4]
Official development assistance has been criticized by several economists for being an inappropriate way of really helping poor countries. The Hungarian economist Peter Thomas Bauer has been one of the most vocal of them. Another notable economist arguing against ODA includes Dambisa Moyo in her book Dead Aid.
Donor countries are most commonly compared by the amount of Official Development Assistance given and their quantity of aid as a percent of GDP. However, there is an increasing focus placed on the quality of aid, rather than simply the quantity. The Commitment to Development Index is one such measure that ranks the largest donors on a broad range of their "development friendly" policies. It takes into account the quality of aid, in addition to the quantity, penalizing countries for tied aid. Aid also does not operate in a vacuum; a country's policies on issues such as trade or migration also have a significant impact on developing countries.