Thursday, 20 June 2024 – In this hybrid seminar, Mr Alexandre Dayant from the Lowy Institute shared his findings on the evolution of sourcing, composition, and quantum of official development finance (ODF) in Southeast Asia over the past decade, and its present and future implications for the region. He was joined by Dr Satish Chand, Dr Stephen Howes, and Dr Sarah Y. Tong.
ISEAS-LOWY INSTITUTE JOINT SEMINAR
This seminar examined the evolution of development finance in the Southeast Asia region and its potential implications. Dr Jayant Menon, Senior Fellow at the ISEAS – Yusof Ishak Institute served as the moderator for the event.
Mr Alexandre Dayant began his presentation by introducing an interactive database – the Southeast Asia Aid Map – published by the Lowly Institute, which tracked and analysed more than 120,000 development projects in Southeast Asia from 107 partners between the years 2015 and 2022. The interactive map supports a variety of analyses, allowing users to breakdown the flow of ODF by recipient countries, source countries, and even sectors.
From a regional perspective, Mr Alexandre noted that, since 2015, the total ODF supplied to the region hit its lowest in 2022. This was raised as a major concern for developing economies as ODF typically constitutes 10-15% of government development spending (and up to 80% for Laos and Cambodia). Mr Alexandre noted that the anomaly of 2020, which saw ODF received by the region peak, was because of the international response against the Covid-19 pandemic. During the period of study, the region received $255 billion in ODF, with the majority of these funds focused on developing economies such at Vietnam and Laos.
Mr Alexandre then pointed out that the majority of ODF in the region continues to come from traditional aid providers such as Germany and Japan, with China being an exception as the main provider of ODF to Brunei, Malaysia, and Laos. Between 2015 and 2022, traditional partners accounted for nearly 80% of ODF.
Mr Alexandre explained that the fall in ODF comes amidst competing financing priorities for aid providers. Following the pandemic, bilateral aid budgets for many countries have fallen. The UK, for instance, has reduced its ODF budget from 0.8% of GNI to 0.5%. The fall in budget is also accompanied by sentiments of certain development partners that no longer prioritise SEA as a financing destination, such as Sweden, which is withdrawing ODF contributions to Cambodia and the region. Lastly, frontloaded financing by development banks for development projects have further reduced the purpose of ODF. Chinese ODF, too, showed no exception to the general downward trend in ODF, with the largest quantum difference in commitment and disbursement of ODF.
At a sectoral level, Mr Alexandre emphasised the low levels of climate financing in the region, which averaged $8.1 billion annually between 2015 and 2022. He pointed to Japan as the leading financier of ODF on climate-related projects in the region. China, however, leads the board as the largest principal financing contributor for climate-related projects, most notably in hydropower dams along the Mekong River in Laos. ODF was also found to be increasingly focused on gender equality objectives. Between 2015 and 2022, ODF spending for gender equality in SEA reached $59 billion, with more than 40% of ODF directly incorporating gender equality as an objective.
At an intra-regional level, ODF contribution has been growing. Between 2015 and 2022, a total sum of $633 billion was disbursed intra-regionally, with an annual average of $79 million. Levels peaked in 2020 at $115 billion, primarily due to vaccine donations and grants. Thailand was the top financier of ODF, with Laos and Myanmar the two largest beneficiaries. Most of Thailand’s contribution went towards infrastructural projects such as road construction in Laos and Cambodia.
Following Mr Alexandre’s presentation, Dr Satish noted the particular contributions of the Asian Development Bank (ADB). He explained that the ADB played a significant role in leading Covid-19 relief support, increasing its contribution from an initial $6 billion to $20 billion for vaccination support. He attributed the sectoral changes to ODF financing to a shift in the priorities of aid donors. For instance, the European Union and Germany were key donors of climate financing, whereas Thailand was focused on assisting its immediate neighbours.
Next, Dr Howes shared that the fall in ODF to SEA could be explained by an increase in aid from the West to Ukraine and its refugee crisis. He also noted that the distribution of ODF is equitably distributed based on the growth rates of developing economies. For instance, Vietnam is less reliant compared to Indonesia and the Philippines on ODF because of its faster economic growth. Regarding climate financing, Dr Howes mentioned the inverse trend reported by the OECD – where developing countries have secured $100B for climate financing. However, he cautioned the interpretation of these figures, as the subject of “climate” financing continues to have a nebulous definition. Lastly, Dr Sarah raised questions about the changes in China’s drivers and choice of destination for ODF.
In the Q&A session, Mr Alexandre answered the audience’s questions related to: the methodology of the study; the presence of other financiers along the Mekong River apart from China; China’s shifting priorities from Myanmar; the distinction between grants and loans, and ODA and ODF; the cross referencing of findings with alternative databases; and the reasons behind Thailand’s large gap in ODF committed and spent.