Aid Budgets or Poverty Reduction? Worry About the Right Priority First

The federal government announced a 7.5% cut in Canada’s Overseas Development Assistance (ODA) budget for the fiscal year 2012. In addition, former CIDA funds not spent (and thus lapsed) represented close to 10% of CIDA’s aid budget for 2012. The total of lapsed aid fund for 2012 and 2013 combined is estimated to represent 12% of the aid budget. Even though no further cuts in Canada’s ODA budget have been announced for 2014, concerns about cuts in the aid budget continue.

While a large volume of aid can make a substantial contribution to reducing poverty in resource-poor countries, the volume of aid alone is unlikely to effectively address the objective of poverty reduction, especially in fragile and post-conflict countries, which are home to the world’s largest percentage of poor people (those earning less than $1.25 per day). Overall, certain other conditions must be met in order for aid to contribute to any developing country’s agenda for poverty reduction.

Under continued weak governance systems in the partner countries, effective use of aid resources will not be possible; the size or volume of aid will not make any difference. 

The most essential condition is for a partner country to prepare and make available to the donors a strategy identifying the country’s priority development needs. Development programs financed by a donor must address the partner country’s development needs. In fact, it is essential for both donors and developing country partners to be vigilant about how effectively aid funds are meeting the identified development needs, including for poverty reduction.

A partner developing country’s development policy, including its poverty reduction strategy, is normally laid out in its PRSP (Poverty Reduction Strategy Paper) or a national development strategy outlining program options and resources required. In the absence of a strategy, with a poverty reduction-oriented budget and a fiscal policy reform planned, disbursement of aid funds (whether large or small in volume) could prove to be wasteful. This is because aid- financed programs may not necessarily address the priority development needs of the people of the partner country. According to Afghan parliamentarian Ramazan Bashardost (as quoted by journalist, David Pugliese in the Ottawa Citizen) “even if donors stop funding Afghanistan altogether it will not be a big change for common Afghans because they never benefited from aid dollars”.

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Results accrued from implementing aid-financed programs addressing the needs identified in the partner country strategy are also important—much more so than the volume of aid committed or disbursed. Managing for results and mutual accountability are, after all, the agreed principles of aid effectiveness (in the OECD-DAC Paris Declaration 2005), requiring commitments from an aid-giving agency and the partner country to transparent management and accounting for development results and finances.

Lack of accountability in the use of aid is therefore a justifiable ground for cutting aid. Canadian taxpayers would support this action not only when the partner country lacks accountability, but when the Canadian government aid agency is unable to account for aid investments. As another Ottawa Citizen article notes, “Canada has spent billions on Afghanistan, and no accounting of exactly where all that money went has been publicly released.”

Professor Liam Swiss of Memorial University in Newfoundland (a former CIDA employee) says that CIDA officers wanting to remain anonymous claim that former CIDA ministers have not been approving even programs aligned with Canadian priorities (such as maternal, new born and child health). The intent in so doing is to lapse aid funds, ultimately resulting in an intended cut in the total ODA budget.

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While this is not desirable, it must also be asked where the request for support in these areas originates. Are these areas identified in the national development strategy of the developing countries, or do they reflect unsolicited proposals from various organizations that are unlinked to needs identified in a national development strategy? Without the support of the recipient country’s government such programs are likely to be unsustainable, and hence are unworthy of funding.

Stable governance and the capacity of governance institutions in partner countries is another critical condition for aid to be effective in producing development benefits. Many developing countries (especially those immersed in conflict) suffer from paucity of institutions with capacity to plan, program, budget, implement and deliver basic services to citizens. In 2005, donor countries committed to undertake the responsibility of strengthening capacities for effective governance in partner country institutions.

This responsibility has been largely neglected. Many developing partner countries rate donor assistance with capacity building for governance institutions as unsatisfactory. To note David Pugliese’s findings on Canadian aid in Afghanistan, the average cost of placing an expatriate consultant or technical assistant for capacity strengthening in an Afghan government institution is $250,000 (financed from the aid budget), compared with $1,000 or less for Afghan civil servants. Capacity is still not generated or stable governance nurtured. Under continued weak governance systems in the partner countries, effective use of aid resources will not be possible; the size or volume of aid will not make any difference.

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