International Development Finance and the UK James Copestake BRLSI World Affairs Talk 20Nov2018

Outline What is international development finance? Development finance and the global struggle against extreme poverty. UK aid trends: is the commitment to poverty elimination weakening?

1. What is international development finance 1. What is international development finance? Three definitions… and their limitations Official Development Assistance Excludes other important financial flows to developing countries. Controversies over how to (re)define ODA. Finance for Developing Countries Classifying countries as ‘developing’ is dodgy. Not all finance for developing countries is used for development. Private money with development intent Debate over definitions of development. The road to hell is paved with good intentions.

Official Development Assistance defined Flows of money and in-kind resources. Concessional in character (grant element of at least 25%). From official government agencies. Administered with the promotion of economic development and welfare of developing countries as its main objective. To countries on the ‘DAC list’ of low and middle income countries. Source: Organisation for Economic Cooperation and Development (OECD) Development Assistance Committee (DAC)

ODA trends Source: Figure 2.1 http://devinit.org/post/investments-to-end-poverty-2018/ Based on data from the OECD Development Assistance Committee Back

Finance for developing countries (2011 US$ trillions, 1990 to 2011) ODA is smaller than Loans Private remittances Foreign Direct Investment Domestic resource mobilisation Source: Table 1.2 http://devinit.org/post/investments-to-end-poverty-2013

International financial flows to developing countries Back

Private Development Assistance Total in 2016 was $45bn (2016). Stable since 2012. Two-thirds ($31bn) from USA UK ($3.9bn) = one third of ODA [BRAC ~US$ 750m] http://devinit.org/post/private-development-assistance-key-facts-and-global-estimates/ Source: http://devinit.org/post/private-development-assistance-key-facts-and-global-estimates/

Footnote: blended finance mechanisms Example 1: using ODA to boost PDA through the charity sector UK Aid Direct UK Aid Match UK Aid Connect Example 2: using ODA to ‘crowd-in’ private investment DFID Impact Programme Private Infrastructure Development Group My own research area: impact evaluation of international development interventions: see www.bathsdr.org

2. Development finance and the global struggle against extreme poverty. Why focus on this? International consensus A SMART goal Not ambitious Sustainable Development Goal, target 1.1: To eradicate all extreme poverty for all people everywhere by 2030. Defining extreme poverty as living on $US 1.90 or less per day (at 2011 PPP prices). Incidence in 2013: 783 million (11%, down from 27% in 2000). Business as usual forecasts for 2030: 270-400 million. Cost of doing better: average annual transfer per person of less than £5 per month (10% of £600) plus universal basic health and education.

Recent publications (all 2018) Development Initiatives. Investments to end poverty 2018: meeting the finance challenge to leave no one behind. Overseas Development Institute. Financing the end of extreme poverty. UK Government. Implementing the Sustainable Development Goals. GOV.UK. World Bank. Poverty and shared prosperity: piecing together the poverty puzzle.

Global distribution of extreme poverty [Projected rise in SSA share from 51% to 86%] Source: Table 1.4. http://devinit.org/post/investments-to-end-poverty-2018/

A feasible international strategy? Focus international effort on those countries currently falling behind most sharply (mostly in Sub-Saharan Africa). Assist in promoting political stability and economic growth To increase domestic revenue earning potential and effort (including through reduction of illicit financial flows). Promote minimum targets for public spending to meet universal basic education, health and social protection (Internationally agreed target of 20+15+15= 50% of government revenue (compared to OECD average of 60%). Prioritize use of ODA to finance any shortfall.

Thirty countries most at risk of being left behind Thirty countries most at risk of being left behind. Lowest ranked on at least two out of three ‘at risk’ lists based on (1) poverty forecasts (2) human development (3)climate fragility Source: DI (2018) Source: Figure1.5. http://devinit.org/post/investments-to-end-poverty-2018/

21/30 of the countries most at risk are also among the 30 with least government revenue Least govt revenue per person* Ethiopia Eritrea Republic of Congo Lesotho Mauritania Nigeria Papua New Guinea Sudan Syria Yemen Somalia Central African Republic Madagascar Burundi Afghanistan Malawi Niger DR Congo Guinea-BIssau Uganda Chad The Gambia Ethiopia Liberia Togo Haiti Mali Comoros Benin Mozambique South Sudan Sierra Leone Tanzania Burkina Faso Guinea Bangladesh Rwanda Senegal Cambodia *estimated by ODI (2018) to lack the tax potential to meet even half the cost of universal basic health, education and social protection services

Domestic public resources are lowest where poverty is highest Source: DI (2018, Figure 3.4).

ODA is needed to augment local resources in ‘at risk’ countries

3. UK aid: rising to the challenge? Labour 1997 - Eliminating world poverty: a challenge for the 21st Century” Gleneagles G8 commitment to 0.7% of GNI target for ODA. Results-based aid management (performance target culture) DFID exclusive poverty mandate - International Development Act 2002. Partnership approach to delivering ‘global public goods’ Iraq and Afghanistan. Global financial crisis. Conservatives 2015 - Tackling global challenges in the national interest” Continued commitment to 0.7% target - ID (ODA Target) Act 2015 Continued emphasis on value-for- money. Aid spending spread more widely across government departments Increase in sub-contracting to and through the private sector Austerity Brexit

ODA and public spending trends (IFS Briefing, 2017) 2005/6 to 2017/18 UK ODA nearly doubled (£7.4bn to £13.6bn). But this is still less than 2% of total government spending 2010/11 to 2016/17 ODA budget (£12 bn) rose by £2 billion Health budget (£122 bn) grew by £12 bn. Education (£64 bn) and Defence (£39 bn) were stable Budgets of all other departments were cut by 28% (£50 bn) “ODA spending is among the most scrutinized part of UK government spending”

Change over 2015 (£ million) But more of the the UK aid budget is being diverted to other activities… 2016 Budget (£ million) 2016 Share (%) Change over 2015 (£ million) Dept for International Development 9,544 70.2 -568 Dept Business, Energy & Ind. Strategy (inc ICF & GRCF) 700 5.2 419 National Security Council (CSSF & Prosperity Funds) 623 4.6 435 Foreign & Commonwealth Office (inc. British Council) 521 3.8 140 Home Office (inc. asylum seekers in first year) 368 2.7 226 IMF contribution (Poverty Reduction & Growth Trust) 454 3.3 European Union attributions 993 7.3 168 Other 1,377 10.1 297 Total 13,587 100.0 1,403

UK ODA allocations 2016 rank (2015) Country specific bilateral 2016 (£m) 1 (1) Pakistan 463 2 (5) Syria 352 3 (2) Ethiopia 334 4 (4) Nigeria 320 5 (3) Afghanistan 235 6 (8) Tanzania 186 7 (22) Jordan 175 8 (7) South Sudan 161 9 (6) Sierra Leone 154 10 (14) Somalia 152 2012 2016 Bilateral aid (% of total UK ODA) 63.2 63.8 Of which, country specific (%) na 66.0 Of which, humanitarian relief <10 15.0 Total country specific bilateral (£m) 3,463 4,841 Of which via DFID (%) 86.6 73.8 DFID to low income countries (%) 67.3 59.3 Non-DFID to low income countries 35.0 25.1 Source: DFID Statistics on International Development 2017: Final 2016 UK ODA spend statistics.

Summary 1. International development finance is highly diverse: official aid is important part only one part of the mix 2. There is a strong consensus across the international development community that eliminating extreme poverty by 2030 is a priority and is feasible. This entails focusing efforts on helping governments to deliver basic health, education and income safety nets, particularly in a small number of at risk countries (mostly in Africa). 3. The UK has made an important contribution to establishing this consensus, is playing a leading role through DFID in helping to deliver it. But there is evidence of increasing diversion of effort away from extreme poverty elimination in those countries most at risk towards less poor country and activities that serve the UK national interest in other ways.