The Hidden Aid Story: Ambition Breeds Success

On Wednesday, February 17, the Development Assistance Committee (DAC) of the OECD released its forecast for 2010 of rich countries’ aid to the poorest. The aggregate comes to $107 billion. This year marks the deadline for the Gleneagles commitment to increase aid—a pledge made by rich countries in 2005 to deliver $130 billion in aid by 2010, a major effort that was trumpeted by Bono as “the beginning of the end of poverty in Africa.” But the DAC warned that the actual number was likely to be short by $23 billion, due to “the underperformance of several large donors.” The Economist chimed in with a story on “broken promises,” while the Financial Times piled on noting that “wealthy countries fail to hit aid targets.”

All of which is true and regrettable. But disappointment with the forecasted aid figures, which is understandably exacerbated in the face of the financial crisis, also misses the bigger point, the silver lining in the DAC report. Aid has actually increased remarkably—by 35 percent in real terms since 2004. A review of the actual numbers shows two facts: the growth of aid has been rather significant since the G8 Summit in Gleneagles; and countries with more ambitious targets for aid are likely to actually deliver far higher amounts of aid. The lesson: do not judge me by what I promise, but by what I deliver.

Consider the aid landscape at the time of Gleneagles. Rich countries collectively gave $79 billion in 2004, up from $64 billion in 1998. The elasticity of aid with respect to GDP was 2.25 in this 6-year interval. That has been turned around since Gleneagles. The elasticity of aid has been 5.83 in the last 6 years. This turn-around is largely the result of greater ambition of rich countries, especially those in Europe. 

Figure 1 shows the relationship between ambition and success in delivering more aid. One way to measure the ambition of the commitments made in 2005 is to look at the change in the ODA/GNI ratio (the aid to national income ratio)—the difference between what each country promised for 2010 and the actual level of 2004 is taken as the degree of ambition and is plotted along the x-axis of the figure. Countries like the United States, Switzerland and Japan promised very little increase in aid and Portugal indicated it would reduce its aid ratios. On the other hand, Spain, Belgium, Austria, Finland, Greece and Italy all promised significant increases in their aid ratios. The vertical axis of the figure shows the actual real increase in aid between 2004 and expected for 2010. There is a significant positive relationship (in fact, the correlation coefficient is 0.74). Countries that promised to give more, and were more ambitious in setting targets for higher aid, actually were able to deliver more aid even if they fell short of their targets.

The implication for the aid community is clear. There is a trade-off between successful delivery of commitments and ambition. Donor countries can be classified into four groups. First, those that are ambitious and largely successful in delivering on their promises, like Sweden, Belgium, Spain, and the United Kingdom. Second, those that promise less but deliver more: Australia, New Zealand, Norway and Canada fall into this category. Third, those who do not promise much and do not deliver much, such as the United States, Switzerland, and Japan. And fourth, those who had good intentions, but failed to deliver, like Italy, Greece and France. The first two groups deserve to be commended for their ambition and success, while the last two groups should be scrutinized as to whether they are bearing their fair share of the global poverty reduction effort.

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It is tempting to measure countries against yardsticks of performance based on their own commitments. But when there is a significant degree of variation in the ambition of these commitments, it may be better to measure countries based on their actual performance.

There are three lessons that can be drawn from the DAC report. When the G-20 meets to discuss development issues this fall, they should bear in mind:

  1. It is still desirable to set stretch targets for international cooperation. The most important cause of low levels of aid increases is a low level of ambition. Each country is likely to have its own reasons for being cautious—for example, in the United States at the time of Gleneagles, official aid was not seen as a major priority. In Japan, official aid has become less popular as it increasingly emphasizes modalities that go against long-held Japanese principles of development cooperation—debt relief, budget support and untied aid have undercut bureaucratic support for aid in Japan.

  2. The financial crisis is a poor excuse for not meeting aid targets. The OECD’s projection for DAC country GNI for 2010 is only 2.6 percent below what was expected in 2005 when aid commitments were made at Gleaneagles. That’s about one-sixth the shortfall in actual aid compared to promises. Leaders must accept responsibility among their peers for their own performance.

  3. Mutual accountability, a much touted principle of development cooperation, is a soft instrument that has few teeth. There is little that can be done to encourage rich countries to meet their promises. Public advocacy may help, but only goes so far. At the end of the day, aid is a voluntary act of global cooperation and solidarity, not something that can be readily sanctioned or enforced by others.