Aid under pressure

Aid under pressure: Support for development assistance in a global economic downturn – Fourth report of session 2008–09

Full_Report (pdf* format – 323 Kbytes)

Summary

The developing world was not responsible for causing the current economic crisis, but it is paying a heavy price for mistakes made by rich countries. Poor countries are experiencing significantly reduced income from trade, remittances and foreign investment. As a result, an additional 90 million people are expected to be living in poverty by the end of 2010, and 400,000 more children are likely to die. Progress towards the Millennium Development Goal of eradicating hunger and extreme poverty has been set back three years.

It is essential that the world’s poorest people are protected against the worst effects of the downturn. The Department for International Development (DFID) is increasing its funding for social protection programmes, which help to provide essential services for the most vulnerable, as part of a broader initiative led by the World Bank. Such programmes are welcome but their coverage must ensure that the most needy do not slip through the net.

At the G20 summit in London in April, agreement was reached to provide billions of dollars of additional resources for the international financial institutions (IFIs), with the majority going to the International Monetary Fund (IMF). This will provide a much needed boost for balance of payments support, yet it remains unclear how much of the funding will benefit developing countries. The IMF must justify the huge uplift in its resources by responding much more flexibly and speedily to developing country needs. Moreover, the huge increase in resources for the IFIs needs to be matched by governance reforms. There has been much discussion about these but little tangible progress. In particular, developing countries need to be given a stronger voice on the boards and in the decision-making processes of the multilateral institutions

The recession should not be used as an excuse to reduce aid flows. The UK Government has made clear that its progress towards the target of allocating 0.7% of Gross National Income (GNI) to Official Development Assistance (ODA) by 2013 will be maintained. However, several countries who made similar commitments are cutting their aid budgets. This is unacceptable. DFID needs to use its position as a global leader in development to press other governments to honour the funding pledges they have made.

Whilst the maintenance of aid flows is vital, developing countries must also be assisted to derive the maximum benefit from their own resources. They lose billions of dollars each year to tax evasion by international companies. The strong message on enforcement of international tax standards sent out by G20 countries at the London summit was welcome. The challenge now is to ensure that this agreement is implemented. The UK has a clear responsibility to address this issue in relation to those British Overseas Territories which are tax havens. The Foreign and Commonwealth Office must assist these territories to conform to international standards as a matter of urgency.

A fair international trade system which opened rich country markets to trade from the developing world is estimated to be worth three and a half times the value of global aid flows. The international community’s performance towards securing an agreement in the pro-development Doha round of World Trade Organisation negotiations has been painfully slow and has frequently looked like collapsing altogether. The UK should use every opportunity to engage the US Administration and the European Union on this issue with a view to making progress at the G8 summit in July.

Signs that the downturn is beginning to undermine previously strong UK public support for aid need to be addressed. Concerns about high levels of corruption and waste in the use of development expenditure need to be allayed. DFID must do more to show the public the many and varied positive outcomes of its work in poor countries. The visibility of UK aid expenditure needs to be increased at home and abroad. It may therefore be time for the Department to change its name to one which more accurately reflects the important work it undertakes on behalf of UK taxpayers, such as British Aid or DFID UK.


Full_Report (pdf* format – 323 Kbytes)

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