The Retreat of Australia’s Aid Program

Australian Aid Policy

Key Points

  • In 2015-16, Australia’s Aid Program will be around A$4 billion, which is less than half the size of what it would have been if the bipartisan promise to reach 0.5% of GNI in 2015 was kept.
  • The cuts to the aid program over the last three years have disproportionally affected the world’s poorest countries, with aid to Sub-Saharan Africa to fall to less than 10% of the level it was promised to be.
  • Only the Pacific and countries that Australia has a refugee processing deal with have been spared the bulk of the cuts, as aid to the Pacific is still set to be almost 60% of the level originally promised. 

Background

Three years ago the Australian Government released a blueprint for the bilateral aid program in 2015-16 disaggregated by region. The plan was for a geographically diverse aid program that had a presence in the world’s poorest countries, while still clearly prioritising Australia’s immediate neighbourhood. However these spending promises have failed to be fulfilled. Instead, Australia’s aid program almost exclusively focuses on the Pacific and some nearby countries in East Asia. The chart below shows that Africa and the Middle East as well as Latin America and the Caribbean have disproportionally suffered from the aid cuts since 2012.

Australian 2015-16 Aid Budget

Potentially one of the most concerning aspects of the retreat of Australia’s Aid Program from its trajectory three years ago is the shift away from the world’s poorest countries. As discussed in this blog, Australia’s aid program was already dramatically disproportionally skewed away from the world’s poor. The latest round of aid cuts is set to exaggerate this imbalance even further.

Source:

DFAT 2015 <http://dfat.gov.au/aid/Pages/australias-aid-program.aspx>

Poor Countries can’t afford the SDGs without more Aid

Global Development

The latest update from the OECD shows that donors are continuing to slash aid to least developed countries, falling by 16% in 2014 alone. If this trend continues, how will this impact the achievement of the Sustainable Development Goals (SDGs)? What will happen if world leaders fail to redirect this pattern at the Financing for Development Summit in July?

An ODI report released this week tackles these questions head on. The costs of achieving three central elements of the SDGs, ending extreme poverty, ensuring every child receives a basic education and providing universal health care are compared to the financial resources available in low income countries. The best available estimates of the costs involved in reaching these SDGs, from sources such as UNESCO, show that the annual amount required for low income countries is $148 billion. This is significantly higher than the finance available in these countries that is estimated to be $75 billion a year. This figure is a combination of half of these countries revenue capacity and existing aid flows. Revenue capacity is estimated by using World Bank and IMF estimates of the optimal level of revenue that could be collected given a country’s stage of development. Only 50% of revenue capacity and aid flows are used because countries face many costs outside the social sectors, such as infrastructure, and on average OECD governments only spend around half of their revenue on social protection, education and health.

Low income countries collectively face a financing gap of $73 billion to be able to meet these SDGs. However some countries are much closer to the amount required than others. The graph below shows the size of the finance gap on a country by country basis for low income countries, ordered in terms of GNI per capita. The richest low income countries, like Kenya, are over three-quarters of the way towards covering the costs. While the poorest countries, like Burundi, are not even able to cover a quarter of the costs of the SDGs.

Financing the Future

The global financing summit planned in July provides an opportunity to tackle these huge financing gaps required for the achievement of the poverty, health and education SDGs. This analysis identifies that relying on more taxes in low income countries will not be enough to ensure a global minimum standard of living for all. In addition to current levels, more aid will be required to pay for the shortfall.

But is it affordable? There are at least three reasons to believe that it is entirely affordable for the world to provide the additional finance required for low income countries to reach the SDGs:

  • Within existing commitments – The extra finance required to meet these goals are well within the bounds of existing international aid commitments. Furthermore if current levels of international support was better targeted towards low income countries than most of the additional finance needed could be found.
  • Small relative to other expenditure – The additional finance required to close the gap in low income countries only amounts to 4% of what the UK government spent on the 2008 financial crisis bank bail-out or less than 1% of global healthcare spending.
  • It has never been as affordable as it is now. Take ending extreme poverty for example, less than 15% of the world’s population live in extreme poverty today compared to around half three decades ago and if current trends continue it is expected to reduce to around 5% by 2030. As the number of people in extreme poverty has reduced so has the cost, as only a fraction of one percent of world GDP would be required to bring everyone above the extreme poverty line.

To find out more check out the report available at: http://www.odi.org/financing-future

Balancing the Books on the Backs of the Poor

Australian Aid Policy

Key Points

  • This year Australia will provide less than 0.25% of GNI in aid, which is around one third of its international commitment to reach 0.7% of GNI by 2015.
  • Successive Australian Governments have cut a total of almost $20 billion from the aid budget in recent years, after abandoning a domestic commitment to give 0.5% of GNI in aid by 2015.
  • As a result of these aid cuts, Australia provides around 1/5 as much aid as the United Kingdom (UK) despite Australia being in a much stronger economic position.

Background

Australia has fallen spectacularly short of its international commitment to provide 0.7% of GNI in aid by 2015. This would have equated to providing less than 3% of the Government’s budget in aid, however Australia only provides around 1% (see here).

Successive Australian Governments have cut the aid budget six times in three years, which was justified as necessary to help with balancing the government’s books. This had led to an abandoning of a bipartisan agreement to increase the aid budget to reach 0.5% of GNI by 2015. Therefore while global aid flows are increasing, Australian aid is shrinking (see here). The chart below shows how this year, Australia’s aid budget will shrink to around one-third of its international commitment and less than half of its domestic commitment.

Graph

Australia’s lack of aid generosity compares unfavourably to many other aid donors, especially the United Kingdom. In the same week as the UK parliament passed a law to provide 0.7% of GNI in aid, the Australian Prime Minister described Australia’s vicious aid cuts as ‘modest’. This is despite Australia being in a significantly better economic position than the UK, as can be seen in the table below. Australia has an income per person more than 50% higher than the UK and Australia has only around 20% the level of government debt, yet it provides only 1/5 the level of aid.

Table

While the UK Prime Minister, David Cameron, famously said the UK would not ‘balance the books on the backs of the poor’, it appears Australia is trying to do just that.

Sources:

World Bank 2015 <http://data.worldbank.org/data-catalog/world-development-indicators>

IMF 2015 <http://www.imf.org/external/pubs/ft/weo/2014/02/weodata/index.aspx>

OECD 2015 <http://www.oecd.org/dac/stats/idsonline.htm>

How Committed are Rich Countries to Development in Poor Countries?

Global Development

Key points

  • Recently, this year’s Commitment to Development Index was released, which ranks rich countries based upon a number of factors, such as Aid, Trade and Environmental policies.
  • Northern European Countries, such as Denmark, Sweden and Norway continue to be on the top of the list. While South Korea, Japan and Switzerland are at the bottom.
  • Interestingly, New Zealand substantially outperforms Australia, while the United States and Germany are on par with Greece and Spain respectively.
  • The index shows that all rich countries could be doing much more to contribute to international development.

Background

Each year the Centre for Global Development, an international development think tank, ranks rich countries based upon how their policies enable or inhibit development in poor countries. The seven factors included in the index relate to Aid, Trade, Finance, Migration, Environment, Security and Technology. The latest rankings released in early January are shown in the Figure below.

CDI Figure

The index measures rich countries commitment to international development beyond comparing aid levels alone, which dramatically alters the rankings of some countries. Luxembourg falls from 1st place based upon aid as a share of GNI to 18th place based upon the more comprehensive index. While Portugal moves much higher up the list to 6th place compared to 12th place when comparing just aid.

Importantly, this index shows that rich countries could be doing much more to contribute to international development. Every country performed poorly in at least one of the seven factors included in the index.

Source:

Centre for Global Development 2015 <http://www.cgdev.org/publication/commitment-development-index-2014>

Australian Aid mainly goes to Middle Income Countries

Australian Aid Policy

Key Points

  • Almost 90% of Australia’s country program aid goes to middle-income countries.
  • Middle-income countries have higher average living standards than low-income countries and are typically less reliant on aid. For example, aid accounts for less than 2% of Vietnam’s economy.
  • Almost all low-income countries in the world are in Sub-Saharan Africa. This is the region where Australia provides the lowest level of aid in per person terms.

Background

The World Bank defines a middle-income country as having over US$1045 income per person (2013 GNI Atlas Method). These countries are considered to be rich enough to be able to begin to access forms of finance other than grant aid, such as private sector loans.

Australia provides almost 90% of country program aid to middle-income countries. This is significantly higher than most other aid donors. The chart below shows that almost all of Australia’s top aid recipients are middle-income countries.

Income per person

Aid is typically only a small share of the economy in middle-income countries. The chart below shows how most of Australia’s top aid recipient countries are not very reliant on aid. In the case of Indonesia and Philippines, aid is actually a negative share of GNI because more money is spent paying off aid loans than they receive in new disbursements of aid.

Aid as a share of GNI

High economic growth rates in Asia in recent decades have meant that there are only a few low-income countries in the region. Sub-Saharan Africa is home to almost all low-income countries in the world and the region is the most reliant on aid. However Sub-Saharan Africa receives the lowest level of Australian aid in per person terms.

Should the region with the poorest countries in the world, which rely the most on aid and have the highest proportion of people in extreme poverty, receive the lowest levels of Australian Aid?

 

Sources

 

OECD 2014 <http://www.oecd.org/dac/stats/idsonline.htm>

World Bank 2014 <http://data.worldbank.org/data-catalog/world-development-indicators>

 

Australia is set to benefit from Aid for Trade

Australian Aid Policy

Key Points

  • The Australian Government has a new commitment to redirect aid spending from traditional aid programs, such as health and education, towards ‘Aid for Trade’. Aid for Trade initiatives are meant to lower transaction costs, making it cheaper and faster for developing countries to buy and sell products overseas. This also benefits Australia because it makes it cheaper and faster to buy from and sell products to aid recipient countries.
  • Many of Australia’s aid recipient countries also rely on Australia as a major trading partner. For example, over one third of PNG’s exports and imports are with Australia.
  • While it is expected that Australia will benefit under this new approach, it is unclear whether the benefits to aid recipient countries from Aid for Trade will be similar, better or worse than those from traditional aid programs.

Background

According the Australian Government, Aid for Trade is about opening up new markets to help boost trade in developing countries. Examples of Aid for Trade initiatives currently funded by the Australian aid program include: paying for DFAT employees to negotiate a Free Trade Agreement with Pacific nations to remove trade barriers; and infrastructure projects such as roads or bridges to allow easier movement of products in and out of developing countries.

Aid for Trade is becoming the flagship of the Australian Aid program under the Government’s new aid paradigm. By 2020, one fifth of all aid will be spent on Aid for Trade. Australia will benefit significantly from an increased focus on Aid for Trade as this will lower transaction costs when trading with Australian aid recipient countries.

Australia is a major trading partner for Australia’s main aid recipient countries, especially in the Pacific. The chart below shows the share of Australian exports of the total exports to these countries. Australia is a top 20 trade partner for all of these countries and a top 5 trade partner for the Pacific countries.

Aid for Trade

To fund Aid for Trade, aid will be shifted away from traditional aid programs, including health and education. While it is likely Australia will benefit from more efficient trade, it is unclear what the impacts of this shift will be for aid recipient countries. Little analysis has been made available by the Australian Department of Foreign Affairs and Trade that discusses what the implications are, positive or negative, for developing countries when aid funding is shifted away from traditional programs to Aid for Trade initiatives.

Given that aid has been redirected away from traditional aid programs towards Aid for Trade, Australia is set to be a beneficiary of this and the benefits for developing countries have yet to be made clear, the question emerges, should Aid for Trade be the flagship of the Australian Aid program?

Sources

DFAT 2014 <http://www.dfat.gov.au/>

Mind the Gap

Global Development

Mind the Gap

Have you ever wondered how large the gap in living standards is between countries? Or how this has changed over time?

An excellent resource to allow you to look at the evidence in a visually engaging and user friendly way is http://www.gapminder.org/

For example, to explore how the Wealth and Health of Nations has changed over time click on the picture below to open Gapminder’s interactive display.

Gap Minder picture

Gapminder also has a series of brief and informative YouTube clips, such as the following video that shows how 200 countries have developed over the last 200 years in just 4 minutes.

The Next Millennium Development Goals?

Global Development

One year ago, a panel of world leaders (including David Cameron, the UK Prime Minister) released a report about the next Millennium Development Goals (MDGs). The purpose of the report was to suggest goals to be achieved by 2030, which can follow on from the MDGs (due to expire in 2015). This September these goals will be voted upon by world leaders and are shown below:

The Next MDGs?

Among policy makers these goals have grown in popularity, however civil society groups are yet to heavily promote them. The exception to this is the first goal, which is to End Poverty by 2030. Organizations such as the Global Poverty Project have mobilized large numbers of people in support of this goal.

Please consider sharing these goals with your friends and colleagues. If you want them to be changed, contact your local politicians and join civil society groups that are trying to influence them. After all, decisions about what the world should be aiming for by 2030 are far too important to be left to policy makers alone.

Read the full report here: http://www.post2015hlp.org/the-report/

 

 

Are Developing Countries too dependent on Aid?

Global Development

Key Points

  • Aid as a share of Gross National Income (GNI) in developing countries has remained below 1% for the last 20 years. In 2012, it reached the lowest level ever recorded.
  • Least Developed Countries receive more than ten times as much aid as a share of GNI as Middle Income Countries.
  • The Pacific receives the highest level of aid as a share of GNI for any region in the world.

Background

A great deal of attention is given to the level of aid as a share of GNI that developed countries provide, however less attention is given to aid as a share of GNI that developing countries receive. This measure is important to examine because it provides insight into how dependent developing countries are on aid. While there is a considerable variation between countries, the chart below shows that on average aid to developing countries has remained below 1% of GNI for the last 20 years.

Aid as a share of Developing World GNI

Least Developed Countries (LDCs) receive significantly more aid as a share of GNI than Middle Income Countries. However on average aid as a share of GNI is still below 5% in LDCs. As the chart below shows as countries’ incomes increase they tend to become considerably less dependent on aid.

Aid as a share of GNI (Income level)

There is tremendous variation in the level of aid as a share of GNI across regions. The chart below shows that the Pacific region receives almost 10% of GNI in aid. The low level of aid as a share of GNI for East Asia is partly due to high economic growth in the region in recent decades that has reduced dependence on aid.

Aid as share of GNI (Regional)

On average, there is little reason to believe that developing countries are too dependent on aid. However for some countries this concern may be more valid. For example, the Solomon Islands have received around 40% of GNI in aid for the last decade.

Source

OECD 2014 <http://www.oecd.org/dac/stats/idsonline.htm>

Australia’s 2014-15 Aid Budget

Australian Aid Policy

Key Points

On Tuesday, the Australian Government not only cut the aid budget, but it also further redirected aid away from the majority of the world’s poor.

  • Australia spends less than $1 in aid per person in the developing world each year. This makes it incredibly important where the aid is spent.
  • Australia’s largest aid partners in the Pacific receive up to almost a $1 per person every day. This is more than 1,500 times the amount of aid Australia provides per person to Sub-Saharan Africa.
  • While reducing the overall aid budget, the Government increased aid to the Pacific and more than halved aid to Sub-Saharan Africa.

Background

On Tuesday, the Australian Government cut the aid budget for the sixth time in two years and it further redirected aid away from the majority of the world’s poor. As outlined in this post here, the Australian aid program does not focus on the majority of the world’s poor, and disappointingly, the new Government is exasperating this. The magnitude of the bias towards Australia’s neighbourhood is shown in the chart below.

 Aid per person

While cutting overall aid spending, the new Government increased aid to the Pacific and East Asia, by reducing aid from South Asia and Sub-Saharan Africa. The chart below shows how regional aid allocations have changed under the new Government in terms of aid per person living in extreme poverty.

Aid per person living in extreme poverty

In the pursuit of budget savings, the new Government has not only, targeted the aid budget, but also disproportionately targeted people living in poverty outside of Australia’s neighbourhood. Given that the cuts to the aid budget make up over 20% of the total cuts to the budget, the Australian Government is trying to balance the books on the backs of the poor, in the poorest regions in the world.

Sources:

DFAT 2014 <http://aid.dfat.gov.au/Pages/home.aspx>

World Bank 2014A <http://iresearch.worldbank.org/PovcalNet/index.htm>

World Bank 2014B <http://data.worldbank.org/data-catalog/world-development-indicators>