Promises v Reality: The Widening Credibility Gap on Aid

January 20, 2009

     By Duncan Green     

The backsliding began almost as soon as the ink was dry on the promises of increased aid made at the 2005 G8 summit in Gleneagles. Have a look at the graphic, based on the latest figures.



It comes from a recent analysis of the latest aid numbers by ace crunchers, Development Initiatives, by way of Owen Barder’s blog. Here are some key points:

Donors promised to increase aid by 2010.  Half way to that target, if donors had been increasing aid at a constant rate to meet their commitments:
– Global aid in 2007 would have been $18.4 billion higher
– Over the last three years donors would have spent an additional $29.5 billion
– This would have lifted approximately an extra 15 million people permanently out of poverty.

The G7 also promised in 2005 to double aid to Africa. Half way to that target:
– G7 aid to Africa has increased by only $3.3 billion, less than a sixth of the promised increase.
– If aid had been increased at a constant rate towards the target, aid to Africa would have been more than $6 billion higher in 2007.

It is becoming clear that Italy, Germany, Portugal, Greece and France are not going to meet their promises

The financial crisis is a potential “quadruple whammy” for developing countries. The value of the existing aid commitments has fallen (because they are expressed as a share of GDP), donors are increasingly unikely to meet those commitments, the financing needs of developing countries have been increased by the downturn, and there will be be substantial declines in non-aid flows to developing countries such as foreign direct investment, remittances, and equity investment.

In industrialised countries the fiscal “automatic stabilisers” tend to increase spending in recession, which both dampens the macroeconomic effects of the downturn and channels additional funding to services that face additional costs. By contrast the institutional arrangements for providing finance to developing countries tend to mean that finance is reduced just as needs are increasing, which amplifies the economic downturn, increases economic instability and jeopardises poverty reduction and service delivery.

January 20, 2009
Duncan Green