NEWS ANALYSIS - Aid Should Focus on Sustainable Development

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By Jaya Ramachandran
IDN-InDepth NewsReport

BERLIN (IDN) - For the first time since 1997 the net official development assistance (ODA) to countries in dire need of funds declined by 2.7%, says the Development Assistance Committee (DAC), which comprises 24 industrialised states of the 34-nation Organisation for Economic Co-operation and Development (OECD).

Its Development Co-operation Report (DCR) 2012, which evaluates 2011 preliminary data reported by DAC members, says that the net ODA in 2011 amounted to $133.5 billion, representing 0.31% of their combined gross national income (GNI). This was a 2.7% drop in real terms compared to 2010, when ODA volumes reached their peak.

"Disregarding years of exceptional debt relief, this was the first decrease in net ODA since 1997 and reflects fiscal constraints in several DAC countries which have affected their ODA budgets. In fact aid budgets fared less well in 2011 than average government spending in OECD countries, which saw marginal growth in real terms between 2010 and 2011," explains the report.

Within the total net ODA, aid for core bilateral projects and programmes – excluding debt relief grants and humanitarian aid – fell by 4.5% in real terms, the report adds.

The largest donors in 2011 were the United States, Germany, Great Britain, France and Japan. Denmark, Luxembourg, the Netherlands, Norway and Sweden continued to exceed the United Nations’ ODA target of 0.7% of gross national income.

In real terms, the largest rises in ODA were registered in Italy, New Zealand, Sweden and Switzerland. By contrast, ODA fell in 16 DAC countries, with the largest cuts recorded in Austria, Belgium, Greece, Japan and Spain. The DCR points out that in the decade up until 2011, aid had been steadily increasing. Net ODA rose by 63% between 2000 and 2010, the year it reached its peak.

"ODA has long been a stable source of development financing and has cushioned the immediate impact of previous financial crises (for example, after the Mexican debt crisis in the early 1980s and the recession of the early 1990s). However, a recession in several DAC donor countries has already severely squeezed government revenue. Large budget deficits in some DAC countries since 2009 have pushed them to cut their aid budgets, and pressure may mount on other donors to do the same in the years ahead," explains the report.

An OECD report issued in April 2012, showed that three of the largest donors – the United States, Great Britain and Japan – require rapid and sustained fiscal consolidations of 8-12% of GDP in order to limit debt/GDP ratios to 50% by 2050. If the adjustments are met solely through spending cuts, this will require reductions in outlays of 12-20%.

Development challenges

The DAC report titled 'Lessons in linking sustainability and development', released on December 4, 2012, says: Despite a steady climb in the world's overall GDP, wide gaps remain from country to country and region to region – and there are growing inequalities throughout.

In the world today: the population has passed the seven billion mark; one billion people live on less than two dollars a day and most of them are malnourished; 1.3 billion people have no access to electricity; one billion people lack clean drinking water; and more than 2.2 million children under the age of 14 die because of unsanitary water. Also: "We are using 1.5 times the resources needed to support global activities." The report explores what such challenges mean for sustainable development.

It pleads for adopting a new model for development co-operation: "The Millennium Development Goals (MDGs) have guided development co-operation since 2000, focusing political attention on combating hunger, fighting child mortality, providing universal education and promoting environmental sustainability. Looking beyond the MDGs, providers and recipients of development co-operation recognise that the challenges ahead require a new operating model."

To ensure effectiveness in supporting the needs and priorities of developing countries, says the report, this new model must integrate green growth thinking into all areas of development co-operation, which goes beyond emphasising natural resource management in aid portfolios to ensure that aid for poverty reduction promotes livelihoods that are secure and resilient to climate change; ensure that support lent for infrastructure development and land use is climate- and disaster-proofed.

The report also stresses the need for reflecting the value of natural capital in aid-supported programmes. This, it says, is particularly important when prioritising the investment of development financing in physical, natural or human capital; more and more evidence suggests that investment in natural capital pays greater social dividends than investment in carbon-intensive infrastructure.

The report also underlines the importance of ensuring that development resource allocations evolve from the current sectoral approach to a whole-of- government approach: this means that the bulk of funding should be used to finance national sustainable development plans that will support countries in addressing green growth priorities in a more comprehensive manner.

The report further pleads for using aid effectively as a catalyst for sustainable development finance. OECD Development assistance Committee projections forecast a levelling off – if not a decrease – in aid spending in the immediate future.

"But how can we use our limited resources more effectively to ensure value for money," asks the DAC, adding that:

Countries need to stick to their pledges to give 0.7% of gross national income (GNI) as ODA at the same time, they need to make sure that their commitments are feasible, and that they enhance the accountability and transparency of aid.

ODA needs to address wider sustainable development concerns (from food security in Africa to the negative impacts of mass urbanisation in Asia) and a broader range of developing countries; it also needs to comprise a full spectrum of financing instruments (from grants to risk guarantees).

ODA needs to be used as a catalyst to foster private-sector development and stimulate investment and trade flows that can help to "de-risk" sustainable development activities.

Development finance needs to promote the uptake of green growth policies using innovative channels. this can include measures such as putting a price on carbon, thereby encouraging companies to reduce carbon emissions while generating new public revenue for developing nations to support their climate-related development projects.

“As the development community moves toward defining the post-2015 agenda, we should revisit valuable knowledge and experience and integrate relevant ideas and approaches – such as those presented in this DCR – to foster innovation in our thinking, our institutions, our behaviour and our technologies," says the report. [IDN-InDepthNews – December 27, 2012]

2012 IDN-InDepthNews | Analysis That Matters

Image: Botswana. Credit: Curt Caremark/World Bank

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