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

Written by Robin Davies

Where Australia gives aidOn 18 January, more than halfway through the financial year, the government finally released some broad-brush information on the allocation of the 2013-14 aid budget cuts announced on the eve of the 2013 federal election.

Foreign minister Julie Bishop’s press statement was brief, issued on a summer Saturday and linked to a rudimentary spreadsheet showing revised allocations at the level of countries, themes and major international organisations only. More detail was provided on some points by The Australian’s foreign editor, Greg Sheridan, whose exclusive report and opinion piece the same day functioned as the main vehicles for announcing and selling the cuts. Aside from Devpolicy’s in-brief article on the day of the announcement, there has been little other analysis. Hence this post.

Aid volume

Did the government do what it said it was going to do? Approximately, yes.

The government said it would reduce aid by $4.5 billion over the period 2013‑14 to 2016-17, relative to Labor’s spending plans at the time of the 2013-14 budget. This was to include a $656 million within-year cut to the 2013-14 aid budget, which represents about 12 per cent of the $5.7 billion aid envelope announced by Labor last May. Aid would fall to just over $5 billion in 2013-14 and would be kept at that level, in real terms, over the forward estimates period.

The actual total cut is just under $640 million and the revised aid budget for 2013-14 is, as expected, just over $5 billion. (To save space, I have prepared a separate technical note [pdf] which sets out the details and explains some apparent discrepancies in the numbers.) The cuts have been allocated almost entirely to DFAT’s appropriations, which has the effect of increasing the required percentage reduction from 12 per cent (already very large for a within-year reduction) to 15 per cent relative to the 2013-14 budget. Labor’s controversial allocation of $375 million for onshore asylum-seeker costs has been removed from the baseline, and therefore not cut at all, even though this is among the first cuts the government might have been expected to make.

Pre-election commitments

Did the government, as it had foreshadowed, reduce aid to far-flung places and multilateral organisations, and protect or increase aid to Australian NGOs? Here, with a little hand-waving, the score stands at two out of three.

Aid to Africa and the Middle East will fall by almost 40 per cent relative to the 2012-13 spending outcome, from $329 million to $200 million. Within this, aid to sub-Saharan Africa will fall by 37 per cent. All other changes in geographic allocations at the regional level are five per cent or less. For most countries in the Asia-Pacific, there is little change relative to 2012‑13. Generally their allocations are reduced by no more than 10 per cent and in some cases allocations have increased where, on development grounds, there was no evident need. Indonesia, for example, grows by 10 per cent (compared to Labor’s planned 22 per cent) and Fiji grows by 25 per cent (compared to Labor’s 35 per cent).

Oddly, though, the smallest and most vulnerable states do badly. The smaller Pacific island countries are collectively cut by 22 per cent, and Bhutan and the Maldives by 18 per cent. One possibility is that this reflects a cessation of planned assistance for climate change adaptation, which might also explain the large cut of 27 per cent to the Bangladesh program.

Mongolia, on the other hand, gets a 52 per cent increase—less than the 75 per cent increase planned by Labor but strangely large. It might be that this reflects a desire to pursue ‘mining for development’ activities there. The government has so far been entirely silent about its attitude to the Labor government’s mining for development initiative, announced at the Commonwealth Heads of Government meeting in 2011 (though it took exception to the $1 million price tag attached to the 2013 Mining for Development Conference in Sydney). This could be the first indication that the government intends to embrace the initiative.

Aid for Australian NGOs provided through the principal subsidy mechanism is reduced by seven per cent relative to the 2013-14 budget, from $144 million to $134 million. This is an increase of 24 per cent on the 2012-13 outcome. Despite suggestions to the contrary from a number of NGOs, the government can reasonably claim to have abided by its pre-election undertaking to expand their funding base.

By contrast, the government has made no significant reductions to multilateral funding. Predictably, the International Labour Organisation will get nil. Everything else is business as usual. Even the Commonwealth Secretariat, particularly ripe [pdf] for cutting, is untouched.

Perhaps, as Sheridan claims, the multilateral slashing will commence once existing funding agreements expire (the contribution obligations under the ILO agreement had already expired). However, the government’s contributions to recent replenishments of the Global Fund and the World Bank’s concessional financing arm (the International Development Association, IDA) did not reveal any determination to harvest savings. The Global Fund received the same level of funding as it did from Labor in the last replenishment, and Australia’s ‘burden share’ in IDA, as increased by Labor in 2007, was maintained at 1.8 per cent. Assuming the Asian Development Bank to be reasonably safe, there are few savings of any significance to be had from cuts to other multilateral funds and programs.

Thematic priorities

For the most part it is not possible to tell how the cuts will affect the balance between the purposes for which aid might be used—health, education, infrastructure and so on. However, in one very significant change the government has reduced humanitarian and emergency response funding by almost 30 per cent relative to the 2013-14 budget, and by 16 per cent relative to the 2012-13 outcome.

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

Little can be deduced about other thematic priorities. The government has allowed no funding for global environment programs and has reduced funding for cross-regional environment programs to only $500,000, but Labor had allowed only $6 million for these programs in 2013-14 in any case. Any real costs in this area would, in cash flow terms, not arise until 2014-15 when provision would 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.

The allocation to ‘other cross-regional programs’ increases by over 400 per cent relative to 2012-13, to $35 million. This creates a small, flexible pool of funding that might well be used to support an Asia-Pacific private sector development initiative—perhaps 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.

International comparisons

Where is Australia now positioned in the international donor league table? We still have a substantial aid program but we cannot, contra Julie Bishop (echoed by Sheridan), call ourselves ‘one of the most generous per capita aid donors in the world’.

Australia was the eighth-largest OECD donor in 2012 (the last year for which comparative data are available), rising toward sixth-largest with projected budget growth. Given an aid budget of $5 billion this year and into the future, Australia is likely to sit at about ninth.

Donor countries’ efforts are usually compared by looking at aid as a proportion of Gross National Income (GNI). At the time of the 2013-14 budget, Australia’s aid-to-GNI ratio was expected to be 0.37 per cent. It will now fall to 0.33 per cent and probably stabilise at 0.32 per cent or so for the next several years. Australia’s ODA/GNI ranking, thirteenth in 2012, is fairly secure even after the recent cuts—but only because no country below us is close.

As for comparisons in terms of official aid per capita—the measure seemingly favoured by Bishop and Sheridan—Australia, at $215 per head (US dollars, 2011 prices) ranks tenth.

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

Steady state?

Has Australia’s aid budget arrived at a steady state? It would be nice to think so—at this point the aid program needs nothing more than certainty about resources, except perhaps stability in policy and administration. 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. Julie Bishop has repeatedly underlined this commitment and criticised the previous government for constantly shifting goalposts.

The outlook for future years is less certain. One reason for this, of course, is that the government’s deficit reduction strategy cannot be guaranteed to remain consistent with its aid volume commitment. Another is that the government’s emphasis on linking aid to ‘performance benchmarks’ could well lead to budget reductions or underspending against budgeted amounts. Indeed, underspending is a real threat in the present financial year given that the aid bureaucracy has been experiencing extreme turmoil since last September.

Known unknowns

Though the government’s bottom-line aid volume commitment might be reasonably firm for now, there are still some large unknowns.

The largest is what impact this year’s 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. While those priorities might not differ markedly from Labor’s, or from many other donors’, past statements suggest a greater emphasis on infrastructure and private sector development, important but expensive areas to work in.

Another very 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 are indications of this in Canada and even, despite protestations to the contrary, in the UK. It is not possible to draw any conclusions from the few signals emitted to date, though it was novel 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’.

And there are several other known unknowns:

  • To what extent might the government use the aid program directly to support its asylum-seeker management regime, both onshore and offshore? While aid funds cannot be used to fund detention centres, there are many related costs, including immigration capacity building, community-level service delivery programs in the vicinity of detention centres and ‘community detention’ arrangements for which aid might be used. This would, however, be quite inconsistent with the government’s expressed views to date.
  • Will the government in the end accept that action on climate change in developing countries is a fundamental priority for international public finance? Leaving aside disputes about whether aid budgets should be used for such action, it is hard to imagine that the government could hold to its pre-election opposition to the use of aid for climate change adaptation, particularly in small island states. And it would seem inconsistent for the government to pursue a ‘direct action’ approach to climate change mitigation domestically while refusing to support developing countries to pursue similar policies in their energy, transport or land sectors (Greg Hunt, now environment minister, made interesting remarks in this regard last August).
  • Does the government in fact have the will to enforce a link between aid allocation and performance in its relationships with governments, international organisations and non-government organisations? It is unlikely Sri Lanka, Papua New Guinea or Nauru will suffer in the near future, no matter how those countries perform against undertakings. There is also a live question about Australia’s own performance: will the government maintain a sufficiently large and professional aid bureaucracy within the Department of Foreign Affairs and Trade to ensure that it has the ability to deliver effective aid?

It is good to have a little 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 blowback and the policy underpinnings of the government’s aid program.

Robin Davies is the Associate Director of the Development Policy Centre. A shortened version of this post appeared on The Conversation.

Robin Davies

Robin Davies is the Associate Director of the Development Policy Centre and an Honorary Professor at the Crawford School of Public Policy. He heads our program of research into global development policy. He was previously a member of AusAID’s senior executive service for a decade, both in Australia and overseas. Most recently he headed AusAID’s international programs and partnerships division. His policy and research interests include multilateral cooperation for development, development and climate change financing models and public-private partnerships for development. He is currently based in Geneva.

8 Comments

  • I am confused about the statement. Perhaps, as Sheridan claims, the multilateral slashing will commence once existing funding agreements expire (the contribution obligations under the ILO agreement had already expired). The agreement link shows an agreement period 2010 – 2015 and expiring in June 2015. The government in 2013 committed to 3 years of ongoing support and transferred a payment in the 2012/2013 financial year to the ILO. There appears to be no transfer of funds in the current financial year 2013/2014. Your understanding of the situation would be greatly appreciated.

    • The agreement (p. 11) commits funding for only the first two years of the five-year agreement period, with further funding subject to a review that was to be undertaken in 2012. I could find no indication that further funding had in fact been agreed on either the relevant pages of the DFAT web site (here) and the ILO web site (here).

      However, on poking around a bit more I found this mid-2013 publication from the ILO’s Better Work Programme which does refer to fresh funding for years 3-5 of the agreement. It specifies the amount allocated to the Better Work Programme (just under $13 million), though not the amounts allocated to other programs.

      The additional funding for years 3-5 would have required an agreement specifying the allocation of the funds to programs and various other things. The agreement doesn’t seem to be publicly available so I can’t be sure what sort of escape clause it might have contained. The words ‘subject to annual budget appropriations’ are common in such agreements. This formula provides plenty of scope to stop paying when appropriations are dramatically reduced, as in 2013-14. Whatever the escape clause was, it might have been activated.

      If that’s the case, it tends to reinforce my view that the government, contra Sheridan, could and have would have cut other multilateral allocations if it wanted to. The fact that it didn’t do so suggests there has been a welcome recognition that most of those allocations are entirely appropriate.

      As for the case of the ILO, it’s unfortunate that it is and always has been a political football. The government, and the UK government, should look at the organisation on its merits after reflecting on the fact that it’s a tripartite body and not some sort of multilateral council of trade unions. The cut to the Better Work Programme, if it is a cut, is particularly disappointing.

      • Thank you for the clarification

        Just an update on the Betterwork programme, they received about $4M in the 2012/2013 financial year in June 2013, as part of the Australia-ILO Partnership. Based on your analysis of the revised budget for 2013/14, there may be no funding in the current financial year. The funds for the second year may be allocated in the 2014/15 budget.
        The Betterwork programme is a joint IFC/ILO programme, hence the IFC plays an important role in the programme and donors have funded Betterwork through either the IFC or the ILO, http://betterwork.org/global/?page_id=304
        The Minister’s recent address on the current government’s policy for aid, auger well for Betterwork, as the programme supports trade and also provides leadership opportunities for women to progress in the formal sector.
        The trade benefits to the countries the programme has worked in have been well documented. Over 10 years in Cambodia, the Better Factories programme has resulted in the export garment sector being a significant part of the country’s economy and providing opportunities to hundreds of thousand of women in the garment sector, ( http://betterwork.org/global/?p=687 and http://betterwork.org/global/?page_id=3550 ) Betterwork paly an important role in the supply chain also, http://economix.blogs.nytimes.com/2014/02/07/the-challenges-of-running-responsible-supply-chains/?_php=true&_type=blogs&_php=true&_type=blogs&_r=1 This has resulted in international brands like Disney requiring Betterwork to be operating in the country they are sourcing from. Other brands, including Australian brands are becoming partners with Betterwork.

        Hopefully the funding allocation for the ILO and the Betterwork Programme in 2013/2014 will happen in the near future, as I understand the programme is facing possible funding challenges if Australian donor funding is delayed.

  • Thanks Robin

    You note: “Generally their allocations are reduced by no more than 10 per cent and in some cases allocations have increased where, on development grounds, there was no evident need. Indonesia, for example, grows by 10 per cent (compared to Labor’s planned 22 per cent) and Fiji grows by 25 per cent (compared to Labor’s 35 per cent).”

    I suspect (and please correct me if I’m wrong) that these figures probably represent forward commitments such as already agreed bilateral programs or expenditure under existing contracts programmed earlier in the cycle when growth was expected. Therefore one can’t derive too much information about future strategy from the 2013-14 final allocations, and the countries that suffered the biggest cuts are probably those with more projects in the pipeline or design stage.

    • Certainly the reallocation will have been constrained by some lock-ins. However, official aid contracts and agreements (including most of those with multilateral organisations) generally contain rather powerful escape clauses, and it’s hard to imagine that aid to Africa, in particular, could be reduced by the amount indicated without disturbing commitments that various partners might have imagined to be unshakeable. The Africa cuts were clearly large for policy reasons, not because commitments were softer there. In short, lock-ins would have played a part in determining the allocation of the cuts, but policy considerations would also have been important in many cases.

  • You say that “Aside from Devpolicy’s in-brief article on the day of the announcement, there has been little other analysis.” That may be the case in Australia, but there’s certainly been a lot of attention paid in the Pacific, which has seen significant cuts, even though the islands region is a core area for Australian policy. The old meme about “deputy sheriff” has already been revived in the Pacific media.

    You highlight that “the smallest and most vulnerable states do badly. The smaller Pacific island countries are collectively cut by 22 per cent” – pity that they don’t have a booming LNG industry like Papua New Guinea, with plenty of opportunities for infrastructure projects!

  • It’s interesting that there’s no drop in multilateral commitments (yet). Could it be the case that, in the chase for austerity, aid through multilaterals is seen as providing a bigger value for money?

    • Jiesheng,

      Unlikely, I think.

      You’ll recall the Treasurer said of the aid program just before the 2013 election, “You’ll see a focus more on support for non-government organisations than investment in multilaterals”.

      And that the Coalition’s foreign affairs policy, released the same day, said “The Coalition supports multilateral institutions that serve a clear national purpose. We support the G20 …, the established regional Asia Pacific bodies, the Commonwealth of Nations, and various organisations of the United Nations, including the World Trade Organisation.” (Never mind that the WTO is not in fact part of the UN system, and that the Commonwealth serves a very unclear “national purpose”.)

      Thus the message was one of greater selectivity and less money overall. I think what we are seeing in practice is a realisation that the case for funding the largest recipients of multilateral funding is in fact very strong, that cutting the other recipients won’t save much, and that the gain involved in cutting even the poorest performers isn’t actually worth the procedural and diplomatic pain.

      I suspect in the end that the government might point to its reversal of two Labor decisions — to join the African Development Bank and to rejoin the International Fund for Agricultural Development — as giving effect to its pre-election commitments, even though the related savings are only savings relative to forward estimates that by now are a fading memory.

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