The Addis Ababa Action Agenda recognizes that the allocation of concessional public finance should take into account a recipient country’s needs and ability to mobilize resources. The Addis Agenda focuses on the special needs of different country groups, particularly LDCs and other vulnerable countries. In addition, the Addis Agenda recognizes the importance of addressing the financing gap that many countries experience when they graduate to middle income country (MICs) status.
The Addis Agenda specifically:
- Recognizes the importance of focusing the most concessional resources on those with greatest needs and the least ability to mobilize other resources
- Commits to take into account level of development of recipients, including income level and vulnerability, as well as the nature of the project being funded, (when determining the) level of concessionality
- Commits to consider appropriately the specific development needs of MICs; Acknowledges that ODA and other concessional finance remain important for MICs
- Encourages shareholders in multilateral development banks to develop graduation policies that are sequenced, phased and gradual
- Commits to couple graduation process of least developed countries with appropriate measures to not jeopardize development progress
Recent research on the impact of graduation indicates that despite the loss of access to some sources of concessional finance, reaching middle-income status does not necessarily result in a decline in ODA. In fact, ODA generally increases when countries’ per capita income rises above the low-income threshold, and only falls when countries reach upper-middle-income or high-income country levels. IDA graduates continued receiving ODA well after graduation, albeit with more expensive terms of finance.
Although some bilateral donors tend to prioritize their support towards LDCs, LDC graduation has not generally had a direct impact on concessional financing flows. However, as countries increased their non-concessional borrowing, the overall terms of finance became more expensive. The impact of LDC graduation on trade, however, can be more pronounced. For the global health fund graduates (graduates from the Global Fund and Gavi), a major concern is the simultaneous graduation of countries from several global health funds, as well as from IDA.
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