The financial crisis is already draining development aid. We need a rescue package for the Millennium Development Goals, writes Kevin Watkins, not donor neglect and armchair aid cynicism.
As governments prepare for the G20 meeting in April, there is one thing you can be sure of: the agenda will be dominated by the global financial crisis. If you’ll forgive the expression, it’s an absolute banker.
So here’s the question. As the financial meltdown continues its journey from the US housing market, through the banking systems and real economies of rich countries and into the lives of the world’s poorest people, when are we going to see a financial rescue package for the Millennium Development Goals (MDGs)?
The target date for achieving the MDGs is 2015. On current trends, most of the targets will be missed in most countries. The human consequences of this simple fact are often forgotten. Current trends point to a gap of 2 million child deaths between projected outcomes and MDG target. Maternal mortality is an MDG zero-progress zone. And the target of universal primary education will be missed by a huge margin: there will still be in excess of 30 million out of school in 2015.
Changing this picture will require action on many fronts. National policy reform and a stronger commitment to tackling inequality in opportunity holds the key. But aid also has a role to play in financing education and health systems – and in supporting economic growth. In the absence of a steep increase in aid, even the best national policies and most committed governments stand to fail.
And failure is where we are heading.
Even before the financial crisis donors were falling far short of their commitments. Remember the G7 pledge made at Gleneagles to increase aid by $50bn by 2010? At the end of last year, money in the aid pipeline was falling short of this amount by around $30bn, with sub-Saharan Africa accounting for the bulk of the shortfall. Donors would have to increase their disbursements to the region by 17 per cent to make good on their Gleneagles commitments.
The financial crisis threatens to make a large financing gap even larger. Part of the problem is that many donors have made aid commitments in terms of aid-to-GNI ratios. For example, EU member states are signed up for an aid target of 0.56% of GNI by 2010. Some are so far from this target as to make its attainment implausible: Italy is a case in point. The broader problem is that, as GNI growth slows or goes into reverse, development assistance will shrink. What matters for developing country budgets and MDG financing are real resources, not the metric for measurement. Exchange rate shifts will compound the problem of shrinking aid. The real value of UK aid mirrors the descent of the pound sterling against the dollar, for example.
While international media attention has been fixed on banking systems, the economies of some of the world’s poorest countries and households are also taking a hit. The IMF has revised its 2009 growth forecast for sub-Saharan Africa down by almost 2 per cent, with attendant implication for government revenue – and hence for the financing of health and education systems. There are also worrying signs that African export prospects will suffer as trade credits dry up and markets in rich countries contract, driving down commodity prices in the process.
The bad news does not step there. The food crisis may seem like yesterday’s news, but it probably left another 30 million people living below the $1.25 poverty line, while at the same time increasing the depth of poverty. There are no credible estimates for the impact of reduced world growth for the MDG target of halving extreme poverty. However, back-of-the envelope calculations suggest that every 1% drop in growth in developing countries leaves another 20 million in poverty.
All of this adds up to a real and present danger for internationally agreed development targets. Even before the financial crunch, there were clear signs that the political momentum behind the MDGs was weakening. The Doha conference on financing for development last December was less of a summit than an irrelevant sideshow, with limited participation from G8 political leaders. Since then, things have not improved.
To his credit, World Bank President Robert Zoellick has at least publicly called on developed countries to act. He has proposed that 0.7 per cent of their stimulus packages be used to finance a vulnerability fund for developing countries (a good idea), with the Bank itself managing the distribution of cash (not such a good idea). So far, there have been no takers.
What is most striking about the current state of affairs is the absence of a coordinated response. Ask yourself this: how many high-level MDG summit communiqués have pledged to financially underwrite the goals? And how many of the donor governments that have signed these communiqués have revised their aid financing commitments in the light of the slow progress achieved, the financial crisis, and revised MDG financing gaps? On current estimates, there is an aid financing gap of around $7bn for the education goals alone.
We have been here before. Research on past episodes of economic crisis carries some important lessons. During the 1990s, the financial crises that swept Latin America and East Asia didn’t only push up headcount poverty. They tipped millions of vulnerable households into long-term poverty, with forced sales of productive assets, kids being taken out of school, and adverse health consequences. Similarly, the contraction in aid during the 1990s compounded Africa’s social and economic problems, with disastrous long-term consequences
Given the emerging fad for aid cynicism, some development commentators may be viewing current trends with a degree of enthusiasm. After all, if aid is not working, let’s have less of it and fast. In recent weeks we have seen veteran aid pessimists like Bill Easterly joined by new luminaries including Niall Ferguson and Dead Aid author Dambisa Moyo in advocating that Africa goes cold turkey on aid. In an epic of bad timing, Moyo calls for African governments to turn from donors to sovereign debt markets to finance development(!).
When it comes to aid, there’s plenty to be cynical about. Yes, a lot of aid is wasted. Donor priorities carry too much weight. And some aid compounds problems in governance and economic growth. But aid also puts kids in schools, helps support access to vital health services, and finances transport infrastructures that provide poor people with access to markets.
In the current climate and with so much at stake, armchair aid cynicism is a luxury we can’t afford. Donors have to act now to increase aid commitments in the light of the financial crisis. The alternative is to leave the world’s poorest people paying for a crisis engineered by its richest bankers.
thanks for this kev really good stuff agree with everything as usual!
madeline bunting did an excellent and scathing review of the moyo book yesterday- http://www.guardian.co.uk/books/2009/feb/14/aid-africa-dambisa-moyo
I could not agree more that armchair cyncism is deeply dangerous at this time when G8 governments are looking for any excuse to cover up their appalling performance on delivering the aid the promised. Not least the Italians who are busy trying to redefine ODA (that old chestnut) to take into account lots of other dubious spending and boost their numbers.
There is a direct link between aid sceptics and the failure of governments to deliver. Their arguments are guaranteed widespread publicity, no matter how flimsy their evidence. They are a great way to start or revive a career in development academia and sell a few books, but have really dangerous consequences in terms of undermining the case for aid and giving Governments cover. The idea of suggesting cold-turkey for Africa, although claimed by the left as well as the right, is in fact closest to the right wing philosophy that would see benefits cut to the poorest to enable them to ‘stand on their own two feet’.
You are absolutely right about the agenda of the G20. And also about the impact of the crisis on aid. At CAFOD, we have compared two scenarios of the aid budget of the UK (where we can continue to be reasonably hopeful about achieving the 0.7% target by the end of 2013). The no recession scenario assumes continued growth at the 1992-2007 annual rate of 2.8% and a pound valued at $2.00=£1.00. The recession scenario assumes negative growth of -1.7% in 2008 (confirmed) and -2.9% in 2009 followed by slow recovery and an average exchange rate of £1.00=$1.5. This gives a cumulative difference in aid over 7 years of £7 billion and, in dollars, $41 billion. A huge difference – and that’s just one country which we assume won’t cut its aid budget.
Thanks Kevin !
It is about time someone demolishes the populist arguments of Dembisa Moyo and the like. How can we expect the world’s private debt markets to finance development, when the capitalism of developed countries is the cause for Africa’s state ?
I think her book does not even deserve academic debate, since there is nothing academic in it. But from an advocacy perspective, academics do need to do something, or we’ll have more and more of the world’s average citizens believe in her views and affect the positions of their governments accordingly.