Characteristics of the new foreign aid architecture and ways forward

Introduction

Countries have developed at various paces, some of them as a result of foreign aid or more officially known as Official Development Assistance ODA. In recent years, there have been many changes to the ODA architecture, including 1) a decreasing amount of aid channelled through multilateral organisations 2) the emergence of new donors and 3 new channels for ODA delivery. In this article, I detail these three characteristics and present possible recommendations to improve the global aid architecture.  This article specifically centres on aid for the purpose of international development and excludes other forms such as military aid.

Decreasing usage of multilateral organisations to channel aid

The first characteristic of the new aid architecture is a decreasing usage the multilateral system to deliver foreign aid.  Certain multilateral organisations such as the World Bank’s International Development Association (IDA) require constant financial funding from their shareholders every three years. Historically, the US has provided the highest share for each IDA replenishment round. In recent years, it has, however, reduced its contributions to IDA replenishments: from 13.78% in IDA 14 to 11.92% in IDA 18, the most recent replenishment round. Although the numerical volume of US aid via the IDA has increased over this time period, this decrease in share indicates an increasing disinterest in utilising this multilateral organisation. The United Nations Educational, Scientific and Cultural Organisation (UNESCO) is another organisation not well favoured by its member states. The UK, for example, rated the UNECO as an average organisation in its last two multilateral aid reviews  and reduced its contributions accordingly.[2][3] In the wider picture, the proportion of aid through multilateral organisations in 2013 was 28%, down from 32% in 2006, while total bilateral aid increased 5 percentage points across the same period.

Recommendations

Multilateral organisations do have disadvantages by not acting according to their shareholder’s wishes, are over-bureaucratic and propose extreme ideologies upon recipient nations. They should hone their expertise on areas such as global public goods and knowledge information. They should not just focus on global targets such the Sustainable Development Goals (SDGs) but work with local stakeholders to ensure aid addresses specific topics. It may not be easy to win back the trust of donor nations, but multilaterals must evolve in order to gain a steady resource for their aid flows.

Rise of new, non-traditional donors

A second big change in the international aid architecture is the rise of new or non-traditional donors. Previous aid recipients or new donor nations such as China, India and Middle Eastern countries have joined ‘traditional’ donors in providing foreign aid. Many of these new donors do not sign up to OECD aid standards or aid agreements, therefore their aid projects and results are less transparent than other donors and may more often than not, providing aid for purposes other than for development. These donors are thus heavily criticised and their aid labelled as ‘Rogue Aid’.[4]

 

This criticism of new donors is widely exaggerated. First, aid from non-traditional donors is structured to differ from neoliberal or Washington Consensus-style policies which focus exclusively on free market ideologies. Second, these donors do indeed adhere to international aid rulings. For example, China only financed the new Cambodian electronic library, and did not impose any conditions along with its aid. Third, new donors help fill financial gaps as some traditional donors have reduced their own aid disbursements.

Recommendations

Nevertheless, these new donors do need to improve the reporting and accountability of their aid projects, many which are shrouded in various forms of secrecy.  These new donors should sign up to international aid agreement like the Paris Declaration to gain the trust of other donors and recipients.[5] With less distrust between tradition and new donors, both sides can more effectively address development topics including those affect all countries, for example, humanitarian crises.

The rise of trust funds

A third characteristic of the new aid architecture is the rise of trust funds. Trust funds, or non-core aid, are projects set up by bilateral donor(s) within multilateral organisations for specific development themes or specific geographical regions.[6] Aid via trust funds has been on the rise, increasing by 8% in real terms since 2009 while the growth rate of core multilateral aid has declined between 2008 and 2011.[7] Foreign aid via trust funds first helps circumvent the bureaucratic and slow-acting nature of multilaterals and reach recipients more effectively. Second, trust funds allow aid to reach regions which donors do not have an existing legal agreement with. Third, they also allow donors to quickly respond to new emerging international development issues such as humanitarian crises.

Trust funds do have their share of disadvantages. First, the funding of trust funds results in diverting foreign aid away from resource-dependent multilateral organisations. This is another factor for the decrease in aid through multilateral organisations.  Second, trust funds, even those within reputable multilateral organisations such as the World Bank, lack stringent accountability.[8]

Recommendations

Trust funds will continue to be popular for donors that wish for faster results for their aid contributions. Donors should ideally improve their rationale for creating trust fund and increase the level of transparency over existing funds. They should ensure that aid through trusts do not displace aid provided through multilaterals, as well as prevent duplication of existing development projects.

Conclusion

As the international community shifts to meet international development targets such as the SDGs, foreign aid will continue to play its role in improving development. The international aid architecture has been characterised by donors channelling less aid through multilateral organisations, new donors emerging, and aid channelled through specific funds within multilateral organisations. This article has detailed these three characteristics and included some recommendations for reform. These characteristics are not detrimental per se; however, they do require change in order to ensure aid truly improve international development.

[1] http://ida.worldbank.org/financing/replenishments/replenishments

[2] https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/224926/unesco.pdf

[3]https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/573494/United-Nations-Educational-Scientific-Cultural-Org-Review.pdf

[4] http://foreignpolicy.com/2009/10/15/rogue-aid/

[5] http://www.oecd.org/dac/effectiveness/parisdeclarationandaccraagendaforaction.htm

[6]http://www.oecd-ilibrary.org/docserver/download/4310191e.pdf?expires=1513610912&id=id&accname=guest&checksum=1D10E182AF7EFCB0A0DEB2C896DBCE09

[7] http://www.oecd.org/dac/aid-architecture/2013%20Multilateral%20Aid%20Report.pdf

[8] https://icai.independent.gov.uk/wp-content/uploads/ICAI-World-Bank-Final-Report_P1-73.pdf

Advertisements
This entry was posted in DFID, Humanitarian Aid, IDA, International Development, International Development Association, International Political Economy, Millennium Development Goals, Posts, SDGs, sustainable development goals and tagged , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s