This eighth CONCORD AidWatch Report focuses on the unique role of aid. It shows that, while all sources of finance are important for development, aid can achieve things that other sources cannot.
The unique role of aid
Poverty is still widespread, and growth alone cannot eradicate it. Other finance is needed, therefore, and some of it needs to be in the form of aid. Ten arguments for aid:
- Effective aid can target public services and support private enterprise for poor people
- Effective aid is available now, and helps establish longer term resource collection
- Aid has to be focused on generating genuine resource transfers for development
- Effective aid can help support accountable institutions and improve governance
- Effective aid means a transparent, accountable public financing mechanism
- Aid is a suitable mechanism for investing in sectors that are key to eradicating poverty
- Loans have to be repaid
- Aid is necessary until developing countries can raise adequate domestic resources through fair tax systems
- Unlike aid, foreign direct investment does not have a development objective
- Aid is the most powerful expression of global solidarity.
Aid is defined as finance provided to support development activities, and only funds that meet strict criteria can be counted towards the politically important quantitative aid targets. Currently there are signs in the EU, the OECD and elsewhere that aid, defined in this way, may potentially be marginalised, and other forms of development finance brought to the fore. Because of aid’s unique and important role, this would be a grave error.
Yet aid could be improved – it could be more effective, and aid quantity figures could be less inflated. In addition, the EU needs to take its aid quantity commitments seriously.
It might be expected that, under current economic pressures, the EU would be working hard to maximise the effectiveness of every cent of aid, and to lead the rest of the world in reaching the same objective. The evidence, disappointingly, is that despite the major Busan conference in December 2011, and the resulting Global Partnership for Effective Development Cooperation (GPEDC), progress on aid effectiveness has slowed:
- Only seven EU member states (MSs) have a full strategy in place for implementing the Busan commitments.
- Many CONCORD members report that, in recent years, their government’s commitment to Paris and Accra principles such as country ownership has weakened.
- Only 10 MSs have undertaken, or said they intend to undertake, ambitious or moderately ambitious actions on aid transparency.
- Only two MSs make their aid predictable by providing three to five-year rolling plans for all their development partners.
- Since Busan, only five MSs have declared strong ambitions to untie their aid further
In addition, the quality of aid effectiveness information has declined significantly since Busan. The implementation of the Paris and Accra agreements was monitored globally, and reasonably comprehensively. The implementation of Busan, on the other hand, is to be monitored mainly at country level.
Quantity of genuine aid
While a few EU member states are standing by their aid quantity commitments, many others appear not to be fulfilling their public promises on them.
In 2012, aid from the EU-27 countries represented only 0.39% of the EU’s GNI, bringing us back to the lowest level since 2007, when aid was 0.37% of EU’s GNI. And, for the second year in a row, aid also dropped well below the objective of 0.7% GNI by 2015. The EU-27 countries delivered €50.6 billion in aid in 2012, a 4% drop compared to the previous year. Aid has either been cut or remained stagnant in 19 EU member states. The deepest cuts between 2011 and 2012 took place in Spain (49%), Italy (34%), Cyprus (26%), Greece (17%) and Belgium (11 %).
Nor are there any signs of imminent improvement. In 2013-2014, total EU aid is expected to remain almost stagnant at approximately 0.43% of GNI. The estimated funding gap between projected aid levels and EU commitments will be approximately €36 billion in 2015 alone. Despite this, European leaders are still insisting that they will honour their aid commitments, without giving any tangible sign of how they plan to do so.
This aid was inflated, moreover, by an estimated €5.6 billion, bringing genuine aid in 2012 down to €45 billion or 0.35% of GNI. The inflated aid comprises several components: imputed student costs, refugee costs in donor countries, debt relief double-counted as aid, tied aid and interest on loans all counted as official development assistance (ODA).
Europe urgently needs to take leadership again and reverse the declining trends in aid practice. Concretely, it should do the following:
On protecting the unique role of aid
- Ensure that the definition of ODA is not diluted by the incorporation of elements of dubious development impact which would further inflate commitment estimates. Ensure that aid effectiveness principles are firmly ingrained in any discussion about the future of the ODA definition, and that civil society organisations (CSOs) and southern partners play a central role in any decisions on it.
- Monitor and report on other forms of development finance more effectively, without including them in quantitative ODA commitments by donors.
On the effectiveness of development cooperation
- Publish Busan implementation strategies by the end of 2013, focusing in particular on the elements of the Busan agreement that derive from the Paris and Accra agreements.
- Fully untie all aid.
- Make information on aid more useful by publishing information in the IATI standard and by continuing to improve data quality and coverage in time for the Busan deadline at the end of 2015.
- Inject political impetus into the GPEDC, ensure partner countries become more fully involved in the process, and review whether the partnership’s constituency structure is working.
- Strengthen the EU’s role in monitoring Busan implementation, and improve the coordination of this monitoring.
On aid quantity
- Meet the longstanding commitment to devote 0.7% of income to ODA in a way that is transparent, predictable and accountable.
- Increase EU pressure on member states that decrease aid or are very far from meeting their targets.
- Reduce the inflation of aid by:
- ending the inclusion of refugee costs, imputed student costs, debt relief and future interest on cancelled loans in aid budgets;
- providing climate finance that is additional to ODA.