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Australia’s foreign aid program: a post-surgical stocktake

The Coalition government’s changes to Australia’s foreign aid budget for 2013-14 were finally confirmed in January by means of a rudimentary spreadsheet. This showed A$650 million in cuts at the level…

Australia made a generous contribution to the relief effort in the Philippines, but has significantly reduced humanitarian and emergency response funding for 2013-14. DFAT

The Coalition government’s changes to Australia’s foreign aid budget for 2013-14 were finally confirmed in January by means of a rudimentary spreadsheet. This showed A$650 million in cuts at the level of countries, cross-regional programs and major international organisations.

While the information provided is broad-brush, it does give some insight into the government’s aid priorities.

Refocusing on the Asia-Pacific

The cuts, as widely expected, signal a significant shift away from Africa and the Middle East. Aid to these regions will fall by almost 40% on 2012-13 levels, from $329 million to $200 million. If these are considered the domain of European donors and multilateral organisations – as it was in the Howard government era – further cuts might well follow in the 2014-15 budget.

All other changes in geographic allocations at the regional level are 5% or less, with little change from 2012-13 for most countries in the Asia-Pacific. Generally, their allocations have been reduced by no more than 10%. In some cases, such as Indonesia and Fiji, the allocations have in fact increased where no need was evident.

Mongolia gets a 52% increase, which is smaller than the former Labor government’s planned 75% boost but strangely large. It might be that this reflects a desire to pursue “mining for development” activities there. If so, this could be the first indication that the government intends to embrace Labor’s initiative.

As for aid to Australia itself, Labor’s controversial allocation of $375 million for onshore asylum seeker costs was removed from the baseline. It was, therefore, not cut at all, even though this is among the first cuts the government might have been expected to make.

Australian NGOs, which do most of their work in our region, have had their funding cut by 7% relative to the 2013-14 budget. They will still receive 24% more than in 2012-13. The government can reasonably claim to have kept its commitment to protect allocations to NGOs.

No aid for action on climate change

Oddly, the smallest and most vulnerable states do badly. Aid to the smaller Pacific Island countries has been collectively cut by 22%, and by 18% to Bhutan and the Maldives. One possibility is that this reflects an end to planned assistance for climate change adaptation, which might also explain the large cut of 27% to Bangladesh.

At the same time, the government has allowed no funding for global environment programs and has reduced funding for cross-regional environment programs to only $500,000. Labor had allocated only $6 million for these purposes in any case.

It is too early to conclude that climate change and the environment are now off limits for aid funding. Global environment programs will not incur costs, in cash flow terms, until 2014-15. That is when provision will need to be made, or not, for contributions to the sixth replenishment of the Global Environment Facility and possibly for the initial capitalisation of the Green Climate Fund.

Smaller countries vulnerable to the impacts of climate change, such as the Maldives, have had their aid funding cut significantly. niOS

Cuts to humanitarian aid

In one very significant change, humanitarian and emergency response funding has been cut by almost 30% relative to the 2013-14 budget and by 16% relative to 2012-13.

At a time when calls on humanitarian and emergency funding are increasing, this large cut will undoubtedly lead to a lessening of support for programs deemed to be of low public interest. We have already seen this in the remarkably low contribution to the UN’s recent Syria appeal, which contrasts with the generous response to the typhoon in the Philippines in November 2013.

The reduction will also mean that whenever this budget line is depleted, bilateral allocations will likely have to foot the bill for emergencies at the expense of long-term development programs.

Where does Australia stand in the donor league table?

Australia was the eighth-largest OECD aid donor in 2012 (the last year for which comparative data are available) and was rising toward sixth largest within a year or two. With a steady-state aid budget of around $5 billion now and into the future, Australia will probably sit at about ninth place.

Australia’s aid as a proportion of Gross National Income will fall from an expected 0.37% to 0.33% and will probably stabilise at 0.32% for the next several years. Australia’s ranking on this measure will likely be unchanged at 13th.

In terms of aid per capita – a measure invoked last year by foreign minister Julie Bishop – Australia, at US$215 per head in 2011 prices, ranks tenth. This is not bad, but not enough to make us “one of the most generous per capita aid donors in the world”.

At present, therefore, Australia’s reduced aid effort is roughly commensurate with its standing among world economies, but not more than that.

The future remains uncertain

It is entirely unknown what impact the announced cuts will have at the level of individual activities within country, regional and global programs, and how those programs will be reshaped over time to reflect the government’s avowed sectoral priorities. Those include infrastructure and private sector development, important but expensive areas to work in.

For the 2014-15 budget, it is hard to see how the government could walk away from its clear commitment to maintain aid at just over $5 billion in real terms. Bishop has repeatedly underlined this commitment and criticised the previous government for constantly shifting goalposts.

The outlook for future years is less certain. The government’s deficit-reduction objectives obviously cannot be guaranteed to remain consistent with its aid volume commitment. And its determination to link aid to “performance benchmarks” could lead to budget cuts or underspending against budgeted amounts.

Another substantial unknown is whether the government’s determination to “leverage” private sector involvement in development amounts to a return to tied aid, which was jettisoned during the Howard era.

There have been too few signals about this to draw any conclusions. It was novel, though, to see Australia’s trade and investment commissioner in Indonesia recently announcing an aid-financed initiative in Jakarta and Makassar to improve water management “using Australian technology”.

More encouragingly, the allocation to “other cross-regional programs” of $35 million (an increase of over 400% relative to 2012-13) creates a small, flexible pool of funding that might well be used to support an Asia-Pacific private sector development initiative. This could possibly be along the lines of the Enterprise Challenge Fund, an initiative that dated back to Alexander Downer’s time as foreign minister and expired late last year.

It is good to have some information on the public record, but it is only a little information. We have yet to gain sight of and understand the real impacts of the cuts, the diplomatic blow-back and the policy underpinnings of the government’s aid program.

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