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>

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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/>

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>

 

Putting Australia’s Aid budget in Perspective

Australian Aid Policy

Key Points

Aid makes up only 1% of the Australian Government’s budget.

  • According to a Lowy Institute poll, the average Australian would like 12% of the Australian Government’s budget to be spent on aid. This is over 10 times as much as currently given in aid.
  • The Defence budget is around fives times larger than the Aid budget. The Australian Government’s recent purchase of fighter jets cost well over twice as much as the Aid budget.
  • Aid is such a small share of the Australian Government’s budget that it would take over 125 years worth of the Aid budget to pay off government debt.

Background

Next week the new Australian Government will hand down its first budget. As foreshadowed in the recently released Commission of Audit report there will be major cuts to public spending, which is highly likely to include the Aid program. At this time it is as important as ever to put the size of the Aid program in perspective.

Aid makes up only around 1% of the Australian Government’s expenditure. As the chart below shows this is quite small when compared to other expenses such as Defence. However one could be forgiven for thinking the Aid budget is larger than this, given that in the name of bringing the budget back into surplus various Australian Governments have cut the aid program a total of five times in the last two years. Over $10 billion dollars has been cut and almost another billion dollars redirected to pay for refugee costs.

Budget pie chart

The most recent cuts indicate that the new Australian Government has disproportionally targeted the aid program. Last year the Government announced they would cut $6 billion from the budget bottom line over the next 4 years, of which three-quarters would be taken from the aid program. All these cuts have been coming from such a tiny proportion of the Government’s overall budget.

Further cuts to the relatively small Aid budget is not in line with the wishes of the average Australian. According to a poll conducted by Australia’s leading foreign affairs think tank, the Lowy Institute, the average Australian would like 12% of the Australian Government’s budget spent of aid. This is over 10 times as much as currently given in aid.

Sources

Australian Government’s Mid Year Economic and Fiscal Outlook 2013 <http://budget.gov.au/2013-14/content/myefo/html/&gt;

Commission of Audit 2014 <http://www.ncoa.gov.au/&gt;

Liberal Party Media Release 2013 <http://www.liberal.org.au/latest-news/2013/09/05/final-update-federal-coalition-election-policy-commitments&gt;

Lowy Institute 2011 <http://www.lowyinstitute.org/publications/2011-lowy-institute-poll&gt;

Senate Enquiry into Australia’s Aid Program 2014 <http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Foreign_Affairs_Defence_and_Trade/Overseas_aid&gt;