The future of UK aid. Should the UK give aid as loans?

Added 10 Mar 2014

This paper by Eurodad member Jubilee Debt Campaign and partners Bretton Woods Project, Bond and UKAN examines the idea of increasing the proportion of UK aid provided as loans to the public or private sector by reintroducing bilateral ODA loans, and the potential creation of a new facility to deliver that increase.

The paper concludes that there is insufficient evidence to support the introduction of bilateral ODA loans in the UK. However, if a new loan facility is created in the future, the government must ensure that UK aid remains focused on development outcomes, poverty eradication and tackling inequality.

More specifically, the paper calls on any new UK development bank or loan facility to follow best practice policy and procedure including to:

  • ensure a focus on qualitative development objectives rather than simply ones that are quantitative financial and economic;
  • ensure civil society and other key stakeholders are included in the design, monitoring and evaluation of project loans to ensure a pro-poor approach;
  • support host country ownership to ensure the benefits of investments accrue locally;
  • follow standard investment exclusion lists and adhere to emerging international environmental, labour and human rights norms;
  • avoid financial intermediaries who use tax havens;
  • develop systems for full public transparency and accountability (for instance, over commercial confidentiality);
  • undertake careful debt sustainability assessments, independently of all creditors such as the IMF and World Bank and with independent civil society participation, to avoid creating new public (or private) debt crises in developing countries;
  • support the creation of a fair, independent and transparent debt arbitration mechanism if debt problems do arise; and
  • develop a common rating tool that could be used by all European development finance institutions members, in order to facilitate comparability development impacts between development finance institutions.
Read the full report here