Aid to poor countries slips further as governments tighten budgets | OECD Study

Development aid fell by 4% in real terms in 2012, following a 2% fall in 2011. The continuing financial crisis and euro zone turmoil has led several governments to tighten their budgets, which has had a direct impact on aid to poor countries. There is also a noticeable shift in aid away from the poorest countries and towards middle-income countries. However, on the basis of the DAC Survey on Donors’ Forward Spending Plans, a moderate recovery in aid levels is expected in 2013.

OECD Secretary-General Angel Gurría expressed concern over this trend “It is worrying that budgetary duress in our member countries has led to a second successive fall in total aid, but I take heart from the fact that, in spite of the crisis, nine countries still managed to increase their aid. As we approach the 2015 deadline for achieving the Millennium Development Goals, I hope that the trend in aid away from the poorest countries will be reversed. This is essential if aid is to play its part in helping achieve the Goals.”

Key aid totals in 2012

In 2012, members of the Development Assistance Committee (DAC) of the OECD provided USD 125.7 billion in net official development assistance (ODA), representing 0.29 per cent of their combined gross national income (GNI). This was a 4.0% drop in real terms compared to 2011 (see Table 1 and Chart 1 *).

Since 2010, the year it reached its peak, ODA has fallen by 6.0% in real terms. Excluding 2007, which saw the end of exceptional debt relief operations, the fall in 2012 is the largest since 1997. It is also the first time since 1996-97 that aid has fallen in two successive years.

The financial crisis and euro zone turmoil led many governments to implement austerity measures and reduce their aid budgets. However, despite the current fiscal pressures, some countries maintained or increased their ODA budgets in order to reach the targets they had set.

The new DAC Chair, Erik Solheim , observed that the DAC would continue to encourage its members to live up to their commitments. “I welcome the efforts of those nine DAC members that increased their aid in 2012, and urge others to increase their aid as soon as their budget circumstances allow”, said Mr Solheim. “Maintaining aid is not impossible even in today’s fiscal climate. The UK’s 2013-14 budget increases its aid to 0.7% of national income, which gives hope that we can reverse the falling trend.”

Donor performance

The largest donors, by volume, were the United States, the United Kingdom, Germany, France and Japan. Denmark, Luxembourg, the Netherlands, Norway and Sweden continued to exceed the United Nations’ ODA target of 0.7% of GNI. Net ODA rose in real terms in nine countries, with the largest increases recorded in Australia, Austria, Iceland (which joined the DAC in 2013), Korea and Luxembourg. By contrast it fell in fifteen countries, with the largest cuts recorded in Spain, Italy, Greece and Portugal, the countries most affected by the euro zone crisis. The G7 countries provided 70% of total net DAC ODA in 2012, and the DAC-EU countries 51%.

ODA from the fifteen EU countries that are DAC members was USD 63.8 billion in 2012, representing a fall of 7.3% compared to 2011. As a share of their combined GNI, ODA fell from 0.44% in 2011 to 0.42% in 2012. ODA rose or fell in DAC EU countries as follows:

Austria (+6.1%): due to debt relief operations with sub-Saharan Africa;
Belgium (-13.0%): due to overall cuts in its aid budget;
Denmark (-1.8%): due to a reduction in bilateral grants;
Finland (-0.4%);
France (-1.0%);
Germany (-0.7%): due to reduced contributions to multilateral institutions;
Greece (-17.0%): due to austerity measures;
Ireland (-5.8%): due to fiscal constraints leading to cuts in its aid budget;
Italy (-34.7%): due to lower levels of aid to refugees arriving from North Africa and reduced debt relief grants compared to 2011
Luxembourg (+9.8%): due to an increase in bilateral grants;
Netherlands (-6.6%): due to overall cuts in its aid budget;
Portugal (-13.1%): following the country’s severe fiscal crisis;
Spain (-49.7%): due to unprecedented cuts in its aid in response to the financial crisis;
Sweden (-3.4%): due to reduced contributions to international organisations;
United Kingdom (-2.2%): reflecting firm budget allocations were put into place to ensure that the government spent an ODA volume of 0.56% of GNI in 2012 and 0.7% from 2013 onwards.

In 2012, total net ODA by the 27 EU member states was USD 65.0 billion, representing 0.39% of their combined GNI. Net disbursements of concessional development assistance by EU Institutions to developing countries and multilateral organisations were USD 17.6 billion, a rise of 8.0% compared to 2011, due essentially to an increase in loans.

Further Outlook

The most recent DAC Survey on Donors’ Forward Spending Plans provides estimates of future aid for all DAC members and major non-DAC and multilateral donors up to 2016. It predicts gross receipts by developing countries of Country Programmable Aid (CPA- see Table 4 *))[1].

CPA rose 1% in real terms in 2012, with falls from DAC countries outweighed by increases from non-DAC and multilateral donors. CPA is projected to increase by 9% in real terms in 2013, mainly due to planned increases by Australia, Germany, Italy, Switzerland and United Kingdom, and in soft loans from multilateral agencies (e.g. IDA, the World Bank’s soft lending window, and IFAD). Total CPA is then expected to remain stable over the years 2014 to 2016.

The Survey suggests a shift in aid towards middle-income countries in the Far East and South and Central Asia, primarily China, India, Indonesia, Pakistan, Sri Lanka, Uzbekistan and Vietnam, and it is most likely that the increase will be in the form of soft loans.

By contrast, CPA is likely to stagnate to countries with the largest MDG gaps and poverty levels, including sub Saharan African countries such as Burundi, Chad, Madagascar, Malawi and Niger, which are also identified as potentially under-aided countries.

Source: OECD.

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