Aid in the post-2015 world

Much of this ‘timesuck discussion’ (Duncan Green) on the post-2015 agenda provides more heat than light. There is a lack of clear analysis of, and certainly no agreement on, what the MDGs have achieved, whether a post-2015 framework should be broadened, for example including measures of inequality – often begging the question of what exactly an ‘international development community’ is.

But there is some agreement that the field of international development is very different from what it was in 1990s, fundamentally changing the circumstances in which a new global agreement would operate. First, aid is rapidly losing its relative importance. While ODA flows in real terms have been fairly constant over the last decade or two, private financial flows – foreign direct investment, portfolio equity, remittances – have increased rapidly (in 2000, aid formed 13% of total flows, and this declined to 9% in 2010). New instruments like social impact investments, global funds and climate finance have expanded rapidly, and domestic tax revenues of emerging and developing economies have been increasing too.

Second, economically, the developing world has become increasingly diverse. In terms of foreign financial flows, this is highlighted by the fact that most private flows go to middle-income or emerging economies, notably Brazil, India and China (which receives more than one-third of global flows). Also, aid flows have adjusted to changing needs: in current dollars, ODA to middle-income countries doubled, while it increased four-fold for low-income countries. Of course, the group of low-income countries is also diverse, but in principle a redirection of aid to the poorest countries seems welcome.

Third, the number of donors has grown significantly. In 2000, according to an ODI paper, 95% of total aid came from ‘traditional’ DAC donors; in 2010, more than a quarter of total aid came from philanthropic organizations, and emerging countries may be providing almost 10% of total ‘ODA-like disbursements’. While the extent to which new donors provide aid differently has tended to be exaggerated in my view, differences amongst old donors have also been large, which means that the international development community is growing even more diverse and complex.

These big trends pose big questions for any post-2015 framework, but the starting point is a positive one: we know more about global development progress than ever (an important achievement of the MDG framework); many countries are increasingly independent from financial aid flows; and the aid fatigue in some donor countries is balanced out by other flows and new financing instruments. The traditional donors will have no choice but to adapt to newly emerging practices, and can do more to support them. Many have already started.    

The limited progress against the MDGs in some countries suggests that there is still a big role for ‘old-style’ aid, which I believe the World Bank rightly recognized by extending the $1/day poverty target to reduce extreme poverty to 3 per cent of the world’s population.  Aid still may have a comparative advantage by focusing on the poorest countries and sectors where results are hardest to achieve, and supporting the basic services necessary for the poorest countries to connect to the global economy.