Three things stand out as vital for aid in 2008. First, global financial instability and the possibility of global recession have the potential to knock international commitments to scaling-up aid off course. The latest OECD/DAC figures for 2007 show that, once debt relief is removed, planned aid commitments are well short of the 2010 targets set in 2005; indeed, some $34 billion short in 2004 dollars, or $38 billion in 2007 dollars. By any measure, this is a huge gap and any new calls on global public finances, such as the kind of bail-out packages for private sector banks seen in the US and the UK, surely lower the probability that the gap will be bridged by 2010.
Second, adverse economic trends of the kind seen in 2008 have the very real potential to undo the ‘good work’ of development aid. Market instability, rising food and oil prices and a slow down in industrialised country demand alters the contours of economic opportunity in developing countries, and particularly for those most dependent on imported oil and food. While aid can help to bolster the ability of low-income countries to weather these trends, the scale of current events is still unknown. There is a real worry that they will overwhelm fragile institutional and human capacities in the very poorest countries, pushing them further back on the road to achieving the MDGs.
Third, the changing face of development finance is putting official development assistance under the spotlight. Much good work has been done in recent years to improve the focus and quality of development aid. The Paris Declaration is a sign of progress, albeit uneven across countries and donors. But in the countdown to the High Level Forum in Accra in September there are reasons for concern. First, some international actors seem to see the Paris agenda as an end in itself, rather than one of a number of means to improve aid quality. And second, because ODA is gradually being overtaken by other financial flows, particularly the sudden growth in philanthropic funds but also by new forms of private sector financing, foreign direct investment and remittance income.
So what’s important for aid in 2008? First, we need to continue to bolster public support for development assistance in the face of adverse global trends and the increasingly valid perception that donor countries are not doing what they said they would in terms of scaling-up aid. Second, we need to commit ourselves, very clearly, to the agenda in Accra, while also being clear that the Paris Declaration is necessary, but insufficient, for achieving better quality aid. What is not covered by the Declaration may be as important, if not more important for the quality of aid, than what is covered. The Declaration does not, for example, include the role of emerging donors such as the Arab States, Brazil, China or India; the growth of private sector sources of financing; the emergence of new private and philanthropic alliances that cut across the old boundaries of global public action or the broadening of the development cooperation agenda to embrace new regional and global challenges.
As noted by participants at the recent Progressive Governance Summit held in London earlier this month, many of the challenges now facing the world are ‘internestic’ – lying at the intersection between ‘the international’ and ‘the domestic’. For aid, this suggests the need to find a new balance between the highly productive and much-needed focus on country-led development and a mounting agenda of regional and global development challenges. The question is whether aid agencies are ready for this in terms of the way they provide incentives for, and monitor, aid delivery; the way in which they engage with recipient countries; the way in which they partner with each other and with the business and philanthropic community; and the way in which they envision the future of bilateral versus multilateral assistance.
Writing this from Washington DC as the Annual Spring Meetings of the IMF and World Bank come to a close it is clear that the issue dominating the headlines – the sudden surge in food prices and its impact on the poorest countries and communities – demands a clear and coherent response from the international community. By definition, this response has to go beyond development assistance to include a wide range of other public and private sector actors. This crisis epitomises the next generation of challenges facing development financing and the part that aid can play. If we are to stay ahead, the thinking must start now.