Uzhhorod, Ukraine - February 26, 2022: Ukrainian refugees with things rush to the Slovak border fleeing Russian aggression against Ukraine
New social contract

The elephant in the room: In-donor refugee costs

By Carsten Staur, Development Assistance Committee (DAC) Chair

Why are DAC members reporting part of refugee costs in their own countries as Official Development Assistance (ODA)? A good question. Here’s the answer:

On 12 April 2023, the OECD published the preliminary data on ODA in 2022 [see press release] that showed a threefold increase in ‘in-donor refugee costs’, i.e. the cost for the first year of receiving refugees and asylum seekers in donor countries. From 2021 to 2022, these costs went from 4.6 percent of ODA to 14.4 percent.

For European donors particularly, this was primarily due to a significant increase in the number of Ukrainians seeking refuge from the brutal and illegal Russian attack on their country. Reported in-donor refugee costs for Ukrainian and other refugees in all DAC member states amounted to a total of 29.3 billion USD in 2022.

This is the highest volume of in-donor refugee costs ever reported by DAC members, even exceeding the peak in 2015-2016 when these costs amounted to 16 billion USD (11 percent of ODA).

The graph displays development in the volume of reported in-donor refugee costs since 1992, from what time streamlined and systematic data are available. It also illustrates the development in the share of in-donor refugee costs as a percentage of total ODA. Please note that data for 2022 are preliminary. 

OECD DAC rules have allowed DAC members to report in-donor refugee costs as ODA for decades. Specific instructions were first introduced in the DAC Statistical Reporting Directives in 1988 when it was agreed that the first-year costs of sustaining developing country refugees arriving in donor countries could be reported as ODA.

The rationale behind this agreement is to reflect the financial effort of hosting refugees and the sharing of responsibility with developing countries who host the vast majority of the world’s refugees: If Somalian refugees seek protection in Kenya, donor assistance to share the costs of supporting these refugees is ODA. If Somalian – or Ukrainian – refugees seek protection in France or Germany, the same rationale may rightly apply, however with some safeguards, specific accounting rules for international flows, and transparency requirements.

In-donor refugee costs is an exceptional item in ODA reporting, and it was never envisaged to be a major component of ODA from DAC members. As depicted in the graphs, that changed when exceptional numbers of refugees arrived in Europe in 2015-16, when these costs became a much more visible part of the assistance provided by some DAC members. These experiences led the DAC to seek more granularity in its reporting system and to clarify the reporting rules and develop a sharper methodology for calculating in-donor refugee costs. These clarifications from 2017 further pinpoint that:

1)  In-donor costs can only be defined as ODA for the first 12 months after arrival in the first country of asylum. If a Ukrainian refugee after a few months moves on to another country of asylum, this does not start a new 12 months cycle for a new donor host country. This will have consequences for the 2023 ODA reporting, as costs related to Ukrainian refugees arriving in Europe in early 2022 can only be reported for part of 2023, even if these refugees should remain in their country of asylum throughout the year.

2) Only expenditures for temporary sustenance can be reported as ODA. That is food, shelter/accommodation, primary and secondary schooling as well as health costs. Expenditures related to integration into the labour market, vocational training, education beyond the secondary level, skills development, and job training cannot be reported as ODA.

3) Costs related to rejected asylum seekers, such as detention costs and/or costs related to forced returns cannot be reported as ODA.

In-donor refugee costs are a challenge for donor reporting, as various costs are incurred at different levels of government (state, region, municipality) and in various public sector institutions. The OECD Development Co-operation Directorate (DCD) has been working closely with member states to validate each country’s processes and encourage them to share their models of calculation, to increase transparency and mutual accountability. The Secretariat has also encouraged DAC members to be conservative, whenever they make their assessments – not to overreport, but to act on the side of caution.

Going forward, looking at the validation of the 2022 data over the coming months and towards the preliminary ODA reporting for 2023, it is clear that:

  • DAC members must be strict on the 12 months rule, and report only the sustenance costs as defined by the DAC reporting rules.
  • Authorities responsible for ODA reporting in each Member State capital must engage substantially with relevant national authorities – and colleagues in other DAC countries – to make sure that DAC reporting rules are strictly applied, and that members take a cautious approach to the estimation of their in-donor refugee costs.
  • DAC members need to reflect on how they best cope with potential ups and downs of in-donor refugee costs in the future. Even though these costs can be reported as ODA, this does not mean that a country must do so. And if reporting in-donor refugee costs as ODA, DAC members still have the option to decide that such costs are additional to their planned development budgets. This is what for example Austria and Germany have done in their preliminary 2022 ODA reporting – meaning that these costs did not have a negative effect on already budgeted ODA programmes and contributions.
  • It is also possible, alternatively, for DAC members to cap these costs at a certain percentage of their total ODA, ensuring that only parts of reportable costs are covered by ODA budgets.

There is a well-established basis for the inclusion of in-donor refugee costs in ODA reporting. At the same time, these expenditures were never foreseen to make up a significant part of DAC members’ ODA reporting. The clarification of the reporting rules agreed to in 2017 may have helped regulate the reporting of such costs in the following years, but with the Russian aggression, and the humanitarian crisis this caused in Ukraine, it was only to be expected that in-donor refugee costs would increase dramatically in 2022.

If the number of refugees arriving in DAC countries stabilises this year, the recent clarifications will ensure that in-donor refugee costs will go down again. When this happens, the challenge will be for DAC members to maintain – and eventually increase – their 2022 levels of ODA and ensure that more ODA be targeted to longer-term development activities in the poorest and most vulnerable developing countries.