Where does our foreign aid money go?

Foreign Minister Julie Bishop today announced that Australia’s foreign aid program will be reformed from a donor-recipient model to one centred on economic partnership. Ms Bishop said the introduction of performance benchmarks will promote greater accountability in how recipient partner countries spend our aid moneys.

This is a worthwhile aim – to achieve greater accountability and efficiency in how aid dollars are spent. Nobody wants to see money wasted when it could otherwise be achieving life-saving and life-changing outcomes overseas or be used on other programs domestically. But it is also an objective that has long proved difficult to attain.

The other major shift signalled by Ms Bishop in her announcement today was a restructuring of where our aid spending goes, with plans for 90 per cent of Australia’s aid program to be diverted to our “immediate neighbourhood” of the Asia Pacific region.

No doubt these changes are designed to compensate for (or distract from) the government’s cuts to future foreign aid spending. More efficient spending should mean we don’t need to spend as much to achieve the same outcomes. And changes to where in the world our aid dollars go means that we can maintain (or even increase) support our region’s aid recipients while reducing spending overall (at the expense of further away regions).

Until recently, Australia has committed to a target of foreign aid spending of 0.5 per cent of gross national income. The 2008-09 budget papers explain:

In 2008-09 AusAID will commence implementation of the Government’s long-term commitment to increase Australia’s official development assistance (ODA) to 0.5 per cent of Gross National Income (GNI) by 2015-16. Estimated ODA to GNI in 2008-09 is 0.32 per cent. The Government expects to increase Australia’s ODA to levels equivalent to 0.35 per cent of GNI in 2009-10, 0.37 per cent of GNI in 2010-11 and 0.38 per cent of GNI in 2011-12.

However, in its 2012-13 budget, the Labor Government moved away from this commitment as a budgetary savings measure. The cuts have been further exacerbated by the Liberal-National Government in its recent 2014-15 budget. Today Ms Bishop announced, "We are not going to embrace Labor's trajectory of spending. We have stabilised the aid budget." The not so implicit message here is that Labor was throwing money away on foreign aid, when it was really (up until 2012-13 budget, anyway) increasing spending to reach the target of 0.5 per cent of GNI, which itself is below the UN's proposed target of 0.7 per cent of GNI for developed countries. "Stabilising" the budget means walking away from a commitment to a reasonable level of aid funding.

So where does our aid money currently go? The federal budget breaks down the official development assistance recipients into the following regions: PNG and Pacific; East Asia; and Africa, South and Central Asia, Middle East and Other, as well as the following additional categories: Emergency, Humanitarian and Refugee Program; Multilateral replenishments; UN, Commonwealth and Other International Orgs; NGO, Volunteer and Community Programs. (Official development assistance also includes a small amount for “program support”, which isn’t considered here.)

The graphs below show how much is spent on each of these regions and categories. “Multilateral replenishments” gets its own graph because expenditure in this category fluctuates so wildly.

Annual exepnditure on official development assistance, regions

Annual exepnditure on official development assistance, additional categories

Annual exepnditure on official development assistance, multilateral replenishments

These graphs clearly show that official development assistance spending will continue to rise in the forward estimates. This is because it will continue to be indexed, however it will not rise in line with gross national income, nor will it rise to the recently held target of 0.5 per cent of gross national income. In fact, as shown in the below graphs, expenditure in most regions and most categories will decrease as a proportion of gross national income.

Annual exepnditure on official development assistance, regions, as proportion of GNI

Annual exepnditure on official development assistance, additional categories, as proprotion of GNI

Annual exepnditure on official development assistance, multilateral replenishments, as proportion of GNI

The 2013-14 figures stand out because there was a drop in expenditure against most regions and categories, but a big jump in multilateral replenishments, for a positive net effect on expenditure.

What is unclear at this stage is how much the government intends to rework the regional allocations. Interestingly, in the government’s budget released only a month ago, the regional bloc with the farthest flung locations (Africa and the Middle East) was set to receive a relative boost in 2014-15 and a massive boost in the final year of the forward estimates (2017-18).

Gross national income and expenditure on direct ODA²

Note that the bars on the above graph are not to scale; otherwise the GNI bars would be 1,000 times bigger again. GNI is included (scaled down) simply to show how stable it is over time, compared with aid funding.

While we wait for all of this to wash up with the government's pending reforms, I will leave you with the words of arguably Australia's most reasonable senator, Nick Xenophon:

The people that we lift out of poverty today could well become our trading partners in years to come, so [foreign aid] makes good economic sense, but the primary reason you need to do it is because it actually saves lives and transforms lives, so I think the governmetn has had a cole and mean heart in these foreign aid changes.

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¹GNI for 2008-09 to 2012-13 from ABS National Accounts, GNI for 2013-14 estimated using available three quarters, GNI for 2014-15 to 2017-18 estimated based on average growth of past six years.
²Direct ODA is expenditure on all ODA categories except program support.