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European aid in danger of missing 2010 targets

28 January 2010

by Nora Honkaniemi

An update from the CONCORD AidWatch network, “EU aid in jeopardy?” released as a prelude to this year’s AidWatch report and in advance of the publication of the annual OECD (Organisation for Economic Co-operation and Development) aid figures, finds that the European aid landscape has been severely altered by the financial crisis.

Before the worst effects of the crisis became apparent, last year’s AidWatch report showed that EU aid was far from reaching the set collective interim target of 0.56% of Gross National Income (GNI) by 2010. Furthermore, aid inflation - meaning including expenditures such as debt relief, student and refugee costs in official aid figures - was common practice across European member states.

This year’s findings reveal that in 2009, because of the bad economic climate, only a few countries were able to maintain aid targets in percentage terms and even fewer could increase aid in real terms. This is happening because as European economies reel from the financial crisis and their economies contract, even those member states who are on target for their aid figures are reducing their actual volume of aid as it is expressed as a percentage of GNI.

Lamentably, it was also found that the OECD and the EU figures that will be published in April may show a dramatic decrease in 2009 aid levels of EU countries and will also show that few are actually on track for fulfilling internationally agreed targets. Even worse, according to recent European Commission research, “Economic cycles and development aid: what is the evidence from the past?” such decreases might sharpen in 2010 as “the effect (of the financial crisis on aid levels) usually comes with a time-lag as aid commitments respond faster than aid disbursements. Cuts in aid disbursements might therefore be felt more strongly only in 2010 rather than in 2009.”

Aid from the OECD DAC (Development Co-operation Directorate) group is also diminishing, research by the United Nations University shows. [1] The UNU study looks at recent macroeconomic research which reinforces the mass of evidence already available, concluding that “aid’s impact is positive and conforms to priors of modern growth theory.” It points out that now is not an opportune moment to flirt with aid skeptics. “The current economic climate is not a good time to experiment with Moyo’s (2009) proposal to cease aid to Africa all together”. The severe impacts of the global food crises and the challenges posed by climate change to developing countries that further increase the need for continued and more effective external finance should not be forgotten amidst the focus on the financial crisis.

Can Europe keep its promise?

Resources available for developing countries to meet the challenges posed have fallen despite increasing needs. Therefore Non-Governmental Organisations are calling for the EU to step up efforts to reach the 2010 interim aid target of 0.56% of GNI. The most recent official figures show that in 2008 EU aid stood at only 0.4% of GNI.

Paying lip service to the importance of aid is not good enough and European donors, while facing constraints on their budgets, need to keep their commitments to raising aid revenues. The effects of the crisis on developing countries will continue to reverberate long after industrialised economies have recovered from the worst impacts. If aid stalls, it will hit developing countries’ public finances hard, with small tax bases, decreasing Foreign Direct Investment and large debt repayments on the rise. External resources are urgently needed, and should be complemented by domestic resources which can be collected through increased tax revenue by curving capital flight and tax evasion.

 All EU member states, with values legally enshrined in human rights and sustainable development, have a responsibility to play a leading role in delivering aid and to ensure that these internationally set targets are achieved on time.

Bad performers:

Amongst older Member States, Austria, France, Germany, Greece, Italy and Portugal are all way off track towards the EU aid targets.  Ireland cut its aid budget by 24% in 2009.

Good performers:

Despite the financial crisis, Belgium, Finland, the UK and Spain are making progress towards reaching their aid targets. 

Needs improvement:

Newer Member States are off track towards their 0.17% individual target.  Poland’s aid for 2009 looks set to stagnate at around 0.08% of GNI whilst the Czech Republic will have given about 0.13%.  Latvia has cut bilateral aid to almost zero.