The ‘scaling up’ of aid flows that could materialise in 2005 is likely to run up against ‘absorptive capacity’ constraints, unless these are taken into account from the beginning, and adequately addressed in the design and implementation of improved aid
Aid and the MDGs
Since the Millennium Development Goals (MDGs) were agreed in 2000 by the UN General Assembly, increasing attention has been devoted to calculating and defining the level of resources needed to allow all countries to reach them by 2015, and to mustering the necessary support from the international community. At the Monterrey Conference on Financing for Development, in 2002, rich countries renewed their pledge to increase development assistance to 0.7% of national income, provided poor countries took concrete steps to improve governance and adopt sound policies for growth. At the recently held High-Level Forum on Aid Effectiveness in Paris, donor countries renewed the pledges made in the Rome Declaration on Harmonisation of 2003 to improve levels of coordination and minimise the negative effects of fragmented and unpredictable aid flows.
The emphasis on ‘scaling up’ development efforts has focused on both issues of quantity and quality of development assistance,
and is based on the premise that adequate, predictable and more effective aid flows are critical to reaching the MDGs. Estimates
of necessary resources have varied substantially. The most recent of these assessments are provided in the reports by the UN
Millennium Project, coordinated by Jeffrey Sachs, and by the Commission for Africa, chaired by Tony Blair. They both argue that substantial increases in aid-financed investment are needed to allow poor countries, and Africa in particular, to break out of
their ‘poverty traps’ and create the conditions for self-sustaining economic growth.
The Millennium Project Report puts projected ODA needs at $135 billion in 2006, growing to $195 billion in 2015, which represents 0.54% of donor countries’ national income. According to the report, aid needs to be tailored to specific country circumstances. In particular, the report identifies a number of countries that are already in a position for a massive scale-up on the basis of their good governance and absorptive capacity. These countries should qualify for ‘fast-track’ status in 2005, gaining access to substantial additional levels of ODA. The Report recently released by the Commission for Africa argues for an additional $25 billion per year to be implemented by 2010, with a further $25 billion per year to be implemented by 2015. Almost half of the extra aid should be spent on health, education and HIV/AIDS, while spending on infrastructure should be doubled.
Donor countries have mostly failed fully to deliver on the promises they made in Monterrey and Rome, but some progress
has been made. The UK, France, Spain, Ireland and Belgium, have adopted specific deadlines to reach the 0.7% target, and recently published figures from the OECD/DAC (2005) indicate that in recent years ODA has increased substantially, reaching $69 billion in 2003 and $78 billion in 2004. The harmonisation and alignment agenda is less advanced, as donor countries struggle to turn their commitment to improved aid practices into concrete behavioural change at international and country level (de Renzio et al. 2004).
In the run up to the UN Conference in September 2005 which will assess progress in reaching the MDGs, a number of policy initiatives are being discussed, such as the creation of an International Finance Facility (IFF) which will allow the frontloading
of substantial additional aid resources, and proposals for global taxes on foreign exchange transactions and aviation fuel. These will be at the top of the agenda for the UK’s presidency of the G8 and the European Union, with a specific focus on the problems faced by the African continent. The prospect of substantial additional amounts of aid therefore depends crucially on the ways in which the international community will decide to react to the recommendations of the UN Millennium Project and of the Commission for Africa, and on the UK’s efforts to convince donor countries to sign up to the IFF.
If this happens, the key questions that will need to be asked are then: Can poor countries effectively absorb a significant increase in aid flows? What can be done to address absorptive capacity constraints?