Chapter 3. Sweden’s financing for development

Sweden remains one of the most generous OECD donors

In 1975, Sweden was the first country to meet the United Nations (UN) target of allocating 0.7% of its gross national income (GNI) to official development assistance (ODA). Sweden’s allocation has remained consistently above this threshold since then. In 2006, the government set a new target of providing 1% of Sweden’s GNI to ODA. This target has the backing of a broad consensus, both in the Riksdag and in the wider Swedish public.

In 2017, Sweden was the most generous OECD Development Assistance Committee (DAC) donor as measured by the percentage of its GNI provided as ODA. It provided USD 5.563 billion (equivalent to SEK 47.549 billion) in net ODA, which represented 1.02% of its GNI (Figure 3.1). Sweden’s 2018 Budget Bill further increased the aid budget to SEK 49 billion in 2018 (equivalent to USD 5.733 billion at the 2017 exchange rate). Given the positive forecasts for its economy and its 1% target, Sweden is likely to deliver net ODA in the amount of SEK 53 billion (equivalent to USD 6.201 billion at the 2017 exchange rate) in 2020.

The grant element of Swedish total ODA was 100% in 2017 and loans amounted to 0.8% of gross ODA. Sweden remains committed to the principle of untying aid. Its share of untied aid has fluctuated in recent years. It increased to 96.3% in 2016, from 86.8% in 2015, but then decreased to 87.8% in 2017 (OECD, 2018a). This decrease was mainly due to improved screening for tied aid at Sida and was predominately related to aid channelled through Swedish government agencies and universities.

Figure 3.1. ODA disbursement and ODA as % of GNI

Note: Amounts shown are in constant 2016 USD prices and exchange rates and as shares of GNI.

Source: Adapted from OECD (2018b), “Creditor Reporting System” (database), https://stats.oecd.org/Index.aspx?DataSetCode=crs1 (accessed January 2019).

Spike in overall ODA as a result of high in-donor refugee costs

Between 2012 and 2017, Sweden’s total ODA increased by 22.8%, rising to USD 5.4 billion from USD 4.4 billion (at constant 2016 prices and exchange rates). ODA spending reached a peak in 2015 at USD 7.1 billion, representing 1.40% of GNI. As shown in Figure 3.1, this increase was driven mainly by a substantial upsurge of in-donor refugee expenditure (+163% over 2014), reflecting Sweden’s commitment to assist those fleeing persecution, war and violence.1A 44% rise in core contributions to multilateral institutions also partly accounts for the increase in total ODA. Spending on bilateral aid followed the opposite trajectory in 2015.2 Since 2016, in-donor refugee costs have decreased and this is likely to be a continuing trend.3

The rise of ODA expenditures on in-donor refugee costs has made it difficult for the Ministry for Foreign Affairs (MFA) to manage its ODA budget effectively, heightening the risk of unpredictable aid4 (Swedish National Audit Office, 2016). The MFA has started to apply scenario budgeting5 to manage uncertainty. This and other tools have enabled Sweden to maintain the predictability of its development aid funds.

Sweden is a good reporter of ODA to the DAC

Sweden’s ODA reporting to the DAC is strong, and there is continuous effort to improve data quality. In 2017, the OECD classified Sweden as a “good” reporter with regard to its ODA reporting to the DAC and Creditor Reporting System. In line with the last peer review’s recommendations, the government has strengthened the transparency of how it calculates in-donor refugee costs, reporting this in its annual Budget Bill and in state accounts. The government is also reviewing the statistical model used to calculate its in-donor refugee expenditure so as to ensure its model will comply with the DAC clarified directives. A recent OECD statistical review (OECD, forthcoming) of Sweden’s reporting to the DAC notes the need for a co-ordinating agency that is responsible for validating ODA-eligible activities and the need for Sweden to improve its reporting at activity level on the instruments of Swedfund, its development finance institution, for more transparency.

Sweden pays special attention to support the least developed and most vulnerable countries

Sweden has embraced the UN target of allocating 0.15%-0.20% of GNI to least developed countries (LDCs), as reiterated in its 2016 policy framework (Government of Sweden, 2016). In 2017, it spent 0.19% of GNI to support LDCs, the second-highest percentage among DAC countries in relative terms.6 Regarding bilateral aid allocable by income,7 Sweden performed very well, with 63% of its ODA allocated to LDCs in 2017 against a DAC country average of 39%.

In line with its new policy approach to managing conflict and fragility, Sweden dedicates a generous share of aid to fragile states and territories, providing 0.25% of its GNI to these contexts. Sweden was the sixth-largest DAC provider to fragile contexts in absolute terms in 2017, allocating a total of USD 1.356 billion.

Sweden’s bilateral ODA is geographically thinly spread

Sweden’s ODA continues to be thinly spread geographically as Figure 3.2 shows, and there is room for Sweden to allocate a higher share of its bilateral ODA to a prioritised set of partner countries. Sweden allocated just 19% of gross bilateral ODA to its top 10 recipients over 2016-17, (against the DAC average of 29%) and only 29% of such aid to its top 20 recipients (against the DAC average of 40%).8 These represent no improvement since the 2013 peer review, which recommended that Sweden concentrate its assistance on fewer countries.9 As a consequence, Sweden ranks among the top 5 donors in only 5 of its 35 priority countries.10

Swedish bilateral aid is strongly focused on sub-Saharan Africa, with 51% of geographically allocable bilateral ODA disbursed to this region in 2017. This is well above the DAC average. In the same year, official aid that could not be allocated geographically represented 49% of Sweden’s gross bilateral ODA - also above the DAC average - with almost half of this aid going to finance in-donor refugee costs.

Figure 3.2. Distribution of allocable bilateral ODA in 2017

Note: The figure shows only allocations to individual recipient countries. Regional allocations that cannot be computed to single countries (equal to USD 298 million and representing 15% of geographically allocable bilateral aid) are not reflected.

Source: Adapted from OECD (2018b), “Creditor Reporting System” (database), https://stats.oecd.org/Index.aspx?DataSetCode=crs1 (accessed January 2019).

Only 36% of Sweden’s gross bilateral ODA was country programmable aid in 2017, below the DAC average of 48%. The breakdown of its non-country programmable aid was in-donor refugee costs (21% of gross bilateral ODA), humanitarian and food aid (12%), and support to non-governmental organisations (NGOs) (8%).11

Sweden’s thematic allocations of ODA are coherent with its policy priorities

Sweden’s spending has a strong focus on promoting democracy, in line with its policy priorities. In 2017, 23% of gross bilateral ODA, equal to USD 906 million, was allocated to good governance and civil society - well above the DAC average of 9%. Of this amount, initiatives aimed at fostering civil society and human rights alone accounted for USD 419 million. Within this area of spending, USD 166 million went to conflict, peace and security in 2017, reflecting a greater focus from Sweden than the DAC average.

Sweden’s well-established focus on gender equality and rights of women is reflected in its ODA allocations. In 2017, 87% of allocable bilateral aid had gender equality and women’s empowerment as a principal or significant objective across all sectors (Figure 3.3) making Sweden the DAC leader on gender-focused aid.12

Figure 3.3. Share of bilateral allocable ODA in support of gender equality by sector in 2017, commitments

Source: Adapted from OECD (2018b), “Creditor Reporting System” (database), https://stats.oecd.org/Index.aspx?DataSetCode=crs1 (accessed January 2019).

Sweden’s focus on the environment is also evident in its bilateral ODA spending. In 2016-2017, 41% of bilateral allocable aid was committed in support of the environment, above the DAC average. However, the share of ODA provided to the environment has remained relatively stagnant, and aid specifically addressing climate change (mitigation and adaptation) has decreased from 15% in 2012-13 to 13% in 2016-17, though within this climate adaptation funding increased.13 In line with its intention to be at the forefront of tackling climate change and environmental sustainability, Sweden has put in place plans to increase the share of aid directed to environment over the next few years (Chapter 2).

Sweden has a clear preference for aid channelled through multilateral organisations and civil society

In 2017, Sweden channelled just 37% of gross bilateral aid through the public sector14 (against the DAC average of 52%). In the same year, it channelled 29% of its bilateral aid through multilateral organisations, exceeding the DAC average of 19%. Sweden also channelled 28% of its bilateral ODA through NGOs and civil society, compared to a DAC average of 15%. The share of Sweden’s bilateral aid channelled through multilaterals and NGOs has increased since 2008; it consistently was directed to activities in the government and civil society sectors.

In 2017, Sweden channelled only USD 29 million through private sector institutions, representing just 1% of its gross bilateral aid - well below the DAC average of 7%.

The largest share of Swedish multilateral aid goes to the UN System

In 2017, 51% of Sweden’s total ODA was allocated to and through the multilateral system, compared to a DAC average of 40%. Sweden’s share of ODA to multilateral organisations (core funding) has fluctuated only slightly between 2012 and 2017, averaging 31% of total ODA. The share of Swedish bilateral ODA channelled through multilateral organisations (multi-bilateral contributions) has also remained relatively stable at roughly 19% of total ODA between 2012 and 2017, against a DAC country average of 13%.15

Compared to other DAC members, Sweden allocates proportionally far more of its core support to UN agencies, as Figure 3.4 shows. In 2017, 39% of its multilateral aid (core) went to the UN System, against the DAC average of 17%, reflecting the value Sweden places on the UN’s normative function to support its policy objectives and its significant humanitarian spending.

Figure 3.4. ODA contributions to and through multilateral institutions in 2017

Note: ODA allocations are grouped by colours: UN System (light blue), EU institutions (dark blue), multilateral development banks (light grey) and other multilateral institutions (dark grey). The box entitled “Other UN” includes minor contributions, the most relevant being are core and bilateral earmarked contributions to the World Health Organization (USD 35 million), UNAIDS (USD 30 million), Food and Agricultural Organization (USD 26 million), and United Nations Educational, Scientific and Cultural Organization (USD 23 million).

Source: Adapted from OECD (2018b), “Creditor Reporting System” (database), https://stats.oecd.org/Index.aspx?DataSetCode=crs1 (accessed January 2019).

Sweden’s allocation of aid to multilateral institutions is strongly aligned to its strategic priorities.

Sweden’s core and non-core support for multilateral institutions is aligned to its policy priorities. Within the UN System, the UN High Commissioner for Refugees received the largest amount of core funding over the 2012-17 period, followed by the Green Climate Fund. In addition, Sweden was the second-largest donor to the UN High Commissioner for Human Rights (OHCHR) and the largest contributor in total resources to the United Nations Entity for Gender Equality and the Empowerment of Women (UN Women) in 2017.

Additionally, in 2017, 25% of Sweden’s non-core multilateral aid was targeted to the government and civil society sector, higher than the DAC average of 13%.

Sweden is increasingly using its ODA to catalyse private finance flows

Sweden has scaled up its use of instruments and diversified its networks for using its ODA as a catalyst for development-related private sector investment and expertise since the 2013 peer review.

Between 2012 and 2017, Sweden mobilised USD 1.4 billion from the private sector through official development finance interventions (OECD, 2019). Sida’s funding to the private sector through guarantees has more than doubled between 2013 and 2017 (Sida, 2017) with guarantees accounting for 80% of Sweden’s mobilised private sector resources between 2012 and 2017 (OECD, 2019). A Carnegie Consult (2016) evaluation of Sida’s use of guarantees found that Sida’s investments were generally relevant and efficient and made positive contributions to private sector development. But the evaluation recommended that Sida do more to ensure it works with financial intermediaries who are able to reach Sida’s intended target groups.

Sida continues to use Challenge Funds and its Public Private Development Partnerships to leverage additional financial flows and know-how from the private sector. Since the 2013 peer review, Sweden has also enhanced its relationships with companies and investors, with the aim of encouraging more development-friendly private flows (Chapters 1 and 3). One result of these efforts is the SEK 2.5 billion (approximately USD 292 million) environmental bond to support sustainable cities in developing countries that is funded by members of the Swedish Investors for Sustainable Development network, with the World Bank.

Swedfund, Sweden’s development finance institution (DFI), provides equity, loans and funds to support private sector investments aimed at delivering development impact. Its total portfolio in 2017 was worth SEK 4.6 billion (approximately USD 538 million) (Swedfund, 2018). Swedfund is a relatively small DFI compared to those of Sweden’s Nordic neighbours.16 But, according to its own reporting, its funding is highly aligned with the geographic focus of Sweden’s development co-operation; 62% of its portfolio goes to sub-Saharan Africa following a deliberate shift in Swedfund’s investments. Its reporting also shows demonstrable impact from its investments in terms of jobs created, female employment, tax generation and renewable energy in partner countries.

Sweden also engages in innovative financing. Sida’s guarantee-based risk transfer mechanism with the Asian Development Bank (ADB), for example, will increase ADB’s lending capacity by an estimated SEK 4.281 billion (approximately USD 500 million) until 2028 (Government Offices of Sweden, 2018). This type of innovation can release capacity for additional operations by improving the risk profile of bank balance sheets and reducing the capital held in reserve to cover guaranteed loans.

Sweden actively supporting building the capacity of its partner countries on taxation

Sweden recognises the importance of helping developing countries to improve their capacity to mobilise domestic resources (Government of Sweden, 2016). Sweden hosted an international conference on capacity-building around taxation in 2018 to share learning. Sweden’s Tax Agency is also currently working in Bosnia and Herzegovina, Cambodia, Kenya, Kosovo, and Mozambique on long-term capacity-building projects.

Sweden is an active member of the Addis Tax Initiative and part of its Steering Committee.