Private Sector Instruments (PSI) in ODA

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At the February 2016 Development Assistance Committee High Level Meeting (DAC HLM), members agreed on the principles to better reflect, in Official Development Assistance (ODA), the donor effort involved in using private sector instruments (PSI), such as loans to the private sector, guarantees, equities and mezzanine/hybrid finance.

These principles set the ground for measuring the donor effort in PSI on a grant equivalent basis, as well as related transparency, accountability and other provisions and safeguards. This is needed to incentivise a greater use of such instruments to scale up private finance mobilisation for development. Despite their best efforts, members did not deliver consensual formal decision on this topic in 2018. Instead, they agreed on provisional reporting methods, which provided instructions and safeguards for reporting certain PSI in ODA on a cash-flow basis. Members agreed to review this provisional arrangement with the aim of improving the provisional arrangement to the extent possible. With an agreement on the first batch of topics in April 2023, the DAC approved the remaining parts of the proposed revised methodology (batch 2 and batch 3) on 31 October 2023.

This decision concludes a long and intense negotiation between DAC members with extensive consultation also of external stakeholders. The DAC’s Chair (Carsten Staur) stated that he was very pleased with the outcome. DAC members have worked hard to resolve their differences and find common ground. They have reached consensus by listening carefully to each other and have succeeded in building a balanced solution step by step. DAC members will implement the rules from 2024 onwards, i.e., for 2023 data. The Organisation for Economic Cooperation and Development (OECD) Secretariat will assist members in transitioning to the new rules and will also monitor their implementation.

The approved documents will soon be made available for the general public by the OECD.

The topics covered in each batch are:

Batch 1 topics (link to document ref. DCD/DAC(2023)22/FINAL).

  • ODA-eligibility assessment of members’ PSI vehicles
  • Treatment of loans to the private sector
  • Treatment of credit guarantees

Batch 2 topics (link to document ref. DCD/DAC(2023)33/FINAL).

  • Treatment of equities
  • Treatment of mezzanine finance and reimbursable grants
  • Clarifications

Batch 3 topics (link to document ref. DCD/DAC(2023)48/FINAL)

  • Additionality, reporting requirements and data disclosure, and monitoring, safeguards and disciplines

 

Manon Kizizié
Head of Financial Division