To help developing countries grappling with the Covid-19 crisis, official donors increased foreign aid to an all-time high of $161.2 billion in 2020, up 3.5% in real terms from 2019, boosted by additional spending, according to preliminary data collected by the OECD.
Within the total Official Development Assistance (ODA) provided by members of the OECD’s Development Assistance Committee (DAC) in 2020, initial estimates indicate that DAC countries spent $12 billion on Covid-19-related activities. Some of this was new spending and some was redirected from existing development programs, according to an OECD survey carried out in April and May 2020. Most providers said they would not discontinue programmes already in place.
Total ODA equated to around 1% of the amount countries have mobilized over the past year in economic stimulus measures to help their own societies recover from the Covid crisis. Meanwhile, the global vaccine distribution facility COVAX remains severely underfunded, OECD Secretary-General Angel Gurría said during a virtual presentation of the aid data.
“Governments globally have provided $16 trillion worth of Covid stimulus measures yet we have only mobilized 1% of this amount to help developing countries cope with a crisis that is unprecedented in our lifetimes,” Gurría said. “This crisis is a major test for multilateralism and for the very concept of foreign aid. We need to make a much greater effort to help developing countries with vaccine distribution, with hospital services and to support the world’s most vulnerable people’s incomes and livelihoods to build a truly global recovery.”
Foreign aid rose in a year that saw all other major flows of income for developing countries – trade, foreign direct investment and remittances – decline due to the pandemic, and domestic resources under increased pressure. Total external private finance to developing countries fell 13% in 2020 and trade volumes declined by 8.5%, according to the OECD’s Global Outlook on Financing for Sustainable Development 2021.
The rise in 2020 ODA was also affected, however, by an increase in loans by some donors. Of gross bilateral ODA, 22% was in the form of loans and equity investments, up from around 17% in previous years, with the rest provided as grants.
The 2020 ODA total is equivalent to 0.32% of DAC donors’ combined gross national income, up from 0.30% in 2019 but below a target of 0.7% ODA to GNI. Part of the rise in the ratio was due to the fact that GNI fell in most DAC countries. Six DAC members – Denmark, Germany, Luxembourg, Norway, Sweden and the United Kingdom – met or exceeded the 0.7% target. Among non-DAC donors, whose assistance to developing countries is not included in the ODA total, Turkey provided aid equivalent to 1.12% of its GNI.
ODA rose in 16 DAC countries, with some substantially increasing their aid budgets to help developing countries respond to the pandemic. The largest increases were in Canada, Finland, France, Germany, Hungary, Iceland, Norway, the Slovak Republic, Sweden and Switzerland. ODA fell in 13 countries, most notably in Australia, Greece, Italy, Korea, Luxembourg, Portugal and the United Kingdom. G7 donors provided 76% of total ODA and DAC-EU countries 45%. ODA provided by EU Institutions jumped by 25.4% in real terms as they mobilized funds for Covid-19-related activities and increased sovereign lending by 136% over 2019.
Short-term support to help with the Covid-19 crisis focused on health systems, humanitarian aid and food security, according to the OECD survey. Aid providers indicated they would focus in the medium-term on making diagnostics and vaccines available to countries in need, as well as offering support to address the economic and social repercussions of the pandemic.
“At the outset of the pandemic, DAC donors said that they would strive to protect ODA volumes. I am grateful and proud to say that they have done that and more. Donor countries have stepped up to support developing countries struggling with the health and economic fallout of Covid-19, even as their own economies and societies have been battered,” said DAC Chair Susanna Moorehead.
“The next few years will be tough and the finance we provide must work harder than ever. If we really are going to build forward better and greener, we must focus on the most vulnerable countries and the most vulnerable people in them, especially women and girls.”
Bilateral ODA to Africa and least-developed countries rose by 4.1% and 1.8% respectively. Humanitarian aid rose by 6%. Excluding aid spent on hosting refugees within donor countries – which was down 9.5% from 2019 to $9.0 billion and mainly concerned Canada, Iceland and the Netherlands – ODA rose by 4.4% in real terms in 2020.
ODA makes up over two thirds of external finance for least-developed countries. The OECD also monitors flows from some non-DAC providers and private foundations. Preliminary data released by the OECD each April is followed by final statistics published at the end of each year with a detailed geographic and sectoral breakdown, according to the 2019 ODA study.
Net ODA has risen for the most part steadily in volume terms from just below $40 billion (in 2019 prices) in 1960. It has more than doubled in real terms (up 110%) since 2000, when the Millennium Development Goals were agreed, despite the impact of the 2008 crisis on provider economies.
Covid-19 spending seemed to have helped lift foreign aid to an all-time high in 2020 but more effort is needed as response is said to have been as futile as attempting to drain the sinking Titanic with a bucket.
According to Daniel Munevar (A debt pandemic is engulfing the Global South, published in IPS on April 15, 2021) between 2010 and 2020, public debt of developing countries has increased from an average of 40.2 to 62.3 per cent of GDP. More than one third of the increase, equal to 8.3 percentage points, took place in 2020 alone. This figure is equivalent to a staggering $1.9 trillion – the size of US President Joe Biden’s recovery plan.
“To be sure, the debt pandemic had an indiscriminate effect across the globe. But, just like Covid-19, it was especially harsh on the most vulnerable countries. In 2020, public debt increased in 108 developing countries. And those that entered the crisis with high levels of public debt tended to experience the largest increases. For a group of 40 developing countries with debt levels above 60 per cent of GDP in 2019, the increase in public indebtedness reached 11.4 per cent of GDP in 2020.
Take for example the case of Pakistan whose public debt went past 87% of GDP at the end of 2019-20, up from about 72% of GDP at the end of 2017-18. The country’s total external debt and liabilities rose to $113.8 billion in fiscal year 2020 from $106.3 billion in the fiscal year 2019. In February this year the then finance minister Dr Hafeez Sheikh presenting the Fiscal Policy and Debt Policy Statement to parliament revealed that Pakistan’s total debt was Rs 36.5 trillion with Rs 11.5 trillion borrowed during the past two years – Rs 600 billion for debt servicing, Rs 3 trillion for the rupee-dollar parity correction and 1.5 trillion rupees for subsidies to meet the tax shortfall due to Covid-19 outbreak.
Debt servicing has become the biggest problem for the government facing severe bouts of Covid-19, as it must borrow continuously to pay back the previous debts.
Data released by the State Bank of Pakistan reveals that Prime Minister Imran Khan’s government paid $11.895 billion in external public debt servicing during 2019-20, and $3.593 billion during the first quarter of this fiscal year.
These grim numbers reveal that the pandemic-hit Pakistan is compelled to borrow more money from domestic and foreign sources to pay its rising health bills, including repayments on old loans.
Earlier in January at a UN meeting, Prime Minister Imran Khan had duly proposed a five-point agenda for emergency financial support to developing countries, including debt relief and restructuring, Special Drawing Rights (SDR) creation and redistribution, larger concessional finance, and suspension of repayment of some of the multilateral loans. Also, he called for an end to illicit financial flows from developing countries.
The latest Corruption Perceptions Index shows little or no progress in the fight against corruption around the world. Though a number of countries have made measurable gains in recent years, an almost equal number have declined. Of the 180 countries and territories reviewed in the latest index, more than two-thirds scored below 50 on a scale of 0 to 100.
PM Khan also pushed the idea that developing countries should be able to borrow from the markets at the prevailing low interest rates available to developed countries. “The liquidity and sustainability facility, proposed by the economic commission for Africa, could be one way to achieve this,” he said.
Copyright Business Recorder, 2021
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