Bridges Weekly Trade News Digest • Volume 11 • Number 12 • 4th April 2007

Development Aid Spending Fell In 2006: OECD

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Overall government spending on development aid fell by 5.1 percent in 2006 to mark the first decline since 1997, the Organisation for Economic Co-operation and Development (OECD) reported on 3 April. The decrease potentially jeopardises commitments made by the Group of Eight (G8) industrialised nations to increase official development assistance (ODA) by USD 50 billion per year by 2010.

Total aid equalled USD 103.9 billion in 2006, falling from USD 106.8 billion the previous year. The figures for 2005 were inflated by exceptional debt relief to Iraq and Nigeria. They were also boosted by reconstruction expenditures in Iraq and Afghanistan, as well as by the response to the December 2004 Indian ocean tsunami. Notably, even with debt relief excluded from calculations, aid spending by members of the OECD’s Development Assistance Committee (DAC) - that is, most major donor governments - dropped in 2006 by 1.8 percent.

"Rich countries are breaking the promises they made to increase aid to the world’s poorest countries," said development campaign group Oxfam International in response to the figures. "Like last year, today’s figures are also massively inflated by one-off debt cancellations to Iraq and Nigeria." Although acknowledging the vital role of debt forgiveness in fighting poverty, Oxfam explained how the USD 14 billion in debt relief to the two countries overstated the true extent of assistance. Iraq was not paying back its debt anyway and thus gained little in real terms. It estimated that Nigeria, on the other hand, stood to benefit by approximately USD 1 billion each year, implying that ODA figures for 2006 were inflated by about USD 13 billion on account of the two countries alone.

Nevertheless, even with the reported decline in ODA, aid to least-developed countries (LDCs) peaked in 2006. Overall spending for the year represents the second-highest recorded level of assistance, following 2005.

The OECD projected that the relative decline from the debt relief-driven 2005 figures will continue, and that in 2007 ODA will also fall slightly.

The recent decline in aid has raised questions about whether the commitments made by G8 governments at the 2005 Gleneagles summit have any realistic chance of being met. Current spending is far short of where it would need to be to fulfill the commitments. "The promises will not be credible unless we begin to see substantial rises in 2007 and 2008," said Richard Manning, chair of the OECD’s Development Assistance Committee.

More than half of the increased assistance promised at Gleneagles was slated for sub-Saharan Africa. In 2006, bilateral net ODA to sub-Saharan Africa increased to near USD 28 billion, or 23 percent in real terms. However, again, a significant portion of this rise was due to debt relief grants. Once these were excluded, aid spending to the region grew by just 2 percent. ODA to sub-Saharan Africa apart from Nigeria had actually fallen by 2.1 percent in 2005 (see BRIDGES Weekly, 13 December 2006).

Few countries meet UN target for ODA

In 2006, the only countries to reach or exceed the United Nations target of spending 0.7 percent of GDP on official development assistance were Sweden, Luxemburg, Norway, the Netherlands, and Denmark.

In contrast, US and Japanese aid fell drastically. Net ODA from the US fell by 20 percent in real terms to USD 27 billion. Again, most of this is explained by exceptionally high bilateral debt relief in 2005, with Washington forgiving its outstanding debt with Iraq. In reaction to the report, a US official reiterated that Washington maintained the world’s highest expenditures on foreign aid, and had doubled spending on it since 2000. The official declined to comment on whether the global downward trend in spending was likely to continue.

Japan’s net ODA spending in 2006 was USD 11.6 billion, representing a 9.6 percent fall in real terms since 2005 partly due to extraordinary expenditures for tsunami and other humanitarian relief.

The UK increased non-debt relief ODA by nearly 22 percent to emerge as the world’s second largest donor in net terms after the US. In gross terms, the US (USD 24 billion) and Japan (USD 18 billion) remained the largest donors, followed by the UK (USD 13 billion), France and Germany (USD 12 billion each). Total aid spent by the European Commission rose by 5.7 percent to USD 10.2 billion, reflecting increased budgetary support from member states and a strengthened disbursement capacity.

The OECD predicts that once exceptional spending on debt relief stabilises, other types of aid should increase and donors will be more effectively able to fulfill their promises. Max Lawson, policy advisor for Oxfam, warned that this would require prompt action. "The G8 must prove its promises were more than empty rhetoric and set binding timetables which clearly show when and how it will deliver real aid increases," he said.

ICTSD reporting; "Development aid from OECD countries fell 5.1% in 2006," ORGANISATION FOR ECONOMIC COOPERATION AND DEVELOPMENT, 3 April 2007; "Rich countries guilty of breaking promises as aid falls warns Oxfam," OXFAM, 3 April 2007; "Africa aid stalls in spite of G8 pledge," FINANCIAL TIMES, 4 April 2007.