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>

 

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How much control do you have over your standard of living?

Global Development

Key Points

  • An individual’s standard of living is overwhelmingly determined by factors out of their control. As such poverty is largely entrenched from birth.
  • A person’s nationality and the level of income of their parents account for over 80% of global differences in standards of living. Nationality alone explains almost two-thirds of the difference.
  • All other factors such as effort, gender and ethnicity account for less than 20% of global differences in standards of living.

Background

Analysis by the World Bank finds that where you are born and who your parents are have huge implications on your standard of living. Nationality and parent’s income level account for over 80% of global differences in standards of living, as can be seen in the chart below.

Control over standard of living

This analysis provides further evidence to demonstrate that one’s standard of living is mainly due to circumstance rather than effort. A child born to parents in poverty in the Democratic Republic of Congo (one of the world’s poorest countries) will almost certainly live their life in extremely different conditions to a child born to middle class parents in Australia.

This has profound implications in regards to how one perceives poverty. Overwhelmingly it is not an individual’s own fault for being in poverty since they had no control over where their were born and how wealthy their parents are. This creates a profound impetus to address this injustice.

Source

World Bank 2009 http://www.arts.cornell.edu/poverty/kanbur/InequalityPapers/Milanovic.pdf

How much more income do the poor need to reach the extreme poverty line?

Global Development

Key Points

The end of extreme poverty has never been so affordable.

  • The additional income required for everyone to be lifted out of extreme poverty is the equivalent of only 0.05% of World Gross Domestic Product (GDP).
  • This is the smallest increase in income (as a fraction of global income) required to end extreme poverty in human history.

Background

The additional income needed for people in extreme poverty to reach the poverty line is defined as the ‘poverty gap’. The chart below shows that over the last 20 years, the global extreme poverty gap has shrunk from over 25 cents to below 10 cents as the average income of those in extreme poverty has increased.

Poverty Gap

The share of global income required to fill the extreme poverty gap has never been so small. As shown in the chart below, over the last 20 years the share of World GDP required to fill the extreme poverty gap has fallen from 0.35% to 0.05%.

Share of World GDP

The actual cost of raising people out of extreme poverty is likely to be significantly larger than the poverty gap. This is because there are costs associated with getting resources to those in extreme poverty, whether through direct cash transfers, income generation activities or other mechanisms.

This analysis provides even further reason to believe that extreme poverty can be eliminated within a generation. Furthermore, it discredits cynics who argue that the world can’t afford to eliminate extreme poverty.

Sources

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

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

 

Australia’s Aid Program does not focus on the vast majority of the World’s poor

Australian Aid Policy, Global Development

Key Points

  1. The Australian Government’s commitment to further focus the Australian Aid Program on East Asia and the Pacific will shift funds away from the vast majority of the world’s extreme poor.
  2. Over three quarters of Australia’s Bilateral Aid goes to East Asia and the Pacific, however the region is home to less than 10% of the World’s extreme poor (excluding China). This is in stark contrast to Sub-Saharan Africa that receives only 5% of the Bilateral Aid Budget but is home to over a third of the World’s extreme poor.
  3. By 2030, over two-thirds of the World’s extreme poor will live in Sub-Saharan Africa (according to World Bank estimates). While less than 2% of those in extreme poverty will remain in East Asia and the Pacific.

Background

Extreme poverty has reduced significantly at a global level over the last twenty years, however some regions have faired much better than others. Extreme poverty in East Asia and the Pacific reduced from almost one billion people in 1990 to 250 million in 2010. This trend is projected to continue and by 2030 the region will only have around 10 million people remaining in extreme poverty (according to World Bank estimates).

The extreme poor will become increasingly concentrated in Sub-Saharan Africa. The number of people living below $1.25 a day in the region increased from 290 million to over 400 million between 1990 and 2010. This is set to increase to almost 500 million by 2030 making Sub-Saharan Africa home to over two-thirds of the world’s extreme poor (according to World Bank estimates). This shift in the geography of extreme poverty is shown in the chart below.

Shift in the geography of extreme poverty

At the same time the Australian Government almost halved Aid to Sub-Saharan Africa in the recent budget update and indicated that this will continue. Sub-Saharan Africa receives only around 5% of the Bilateral Aid Budget although it is home to over a third of the World’s extreme poor. While East Asia and the Pacific receive over three quarters of the Bilateral Aid Budget, even though the region is home to less than 10% of the world’s extreme poor (excluding China).

Sources:

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

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

World Bank 2013 <http://documents.worldbank.org/curated/en/2013/11/18506691/shared-prosperity-mitigation-poverty-practice-precept>