Lowy Institute for International Policy | Australian Foreign Aid

OVERVIEW   Australian aid cuts In December 2014 the Abbott government announced significant cuts to Australia’s foreign aid program as a part of general budget savings in its Mid-Year Economic and Fiscal Outlook. Australian Treasurer Joe Hockey said that savings of $3.7 billion in the foreign aid program over the next four years would offset new commitments in Defence and national security. These cuts, reflected in the 2015-16 Budget, mean Australia's aid budget has now fallen to $4 billion, down from a peak of $5.6 billion in 2012-13. According to calculations by the Development Policy Centre at ANU, the government’s budget cuts mark both the largest ever multi-year aid cuts (33%) and largest ever single year cut (20% and $1 billion in 2015-16). This will see Australian aid fall to 0.22% of Gross National Income (a global measure of donor generosity) in 2017-18, the lowest level in Australia’s history. The 2015-16 Budget indicates how Australia will achieve the 20% cut. The decisions seem to have been made from a geographical and political viewpoint rather than through an assessment of the development effectiveness of each country and program. With the exception of Cambodia, Nepal and Timor-Leste, aid to countries in Asia was cut by 40%. The Pacific and Papua New Guinea were largely spared (only a 5% cut to PNG and 10% cut to Pacific Regional funding). Sub-Saharan Africa was slashed by 70%, and aid to the Middle East was cut by 43%. As a result, Papua New Guinea replaces Indonesia as the largest recipient of Australian aid, receiving $477.4 million in 2015-16. The 2015-16 Mid-Year Economic and Fiscal Outlook, which in the past has been used to announce major cuts to Australia’s aid budget, this year time left the aid program untouched aside from marginal initial investments into the Asian Infrastructure Investment Bank. The investment, totalling $3.4 million over the forward estimates period, means the remaining $5.2 billion capital subscription will be required in 2019-20, which hardly seems credible if it is to be financed out of the Australian aid budget. According to research conducted by the Development Policy Centre at ANU, Australia’s declining aid expenditure puts it at odds with the aid budget trajectories that many other OECD countries are following. In 2013, the Conservative government in the UK became the first G7 donor to reach the OECD's 0.7% of GNI target, increasing its official development assistance (ODA) by 27.8% on 2012 levels. It has since passed a bill enshrining the 0.7% commitment into law.   Emerging donors are also increasing their aid expenditure. China now has a larger program than Australia, spending US$6.4 billion in 2013. While China's budgeting and delivery is not completely compatible with OECD conventions, it is clear that its aid spending is on an upward trajectory, with an estimated average annual increase of almost 10% over the last five years. India has also been rapidly scaling up its aid program to a point where it now, on Purchasing Power Parity, rivals Australia’s in size. The United Arab Emirates is another example of a non-traditional donor scaling up its aid program. In 2013 it provided US$5.2 billion of ODA in 2013 (bigger than Australia's A$5.03 billion in 2014-15), a 375% increase on its 2012 ODA levels. This equates to 1.25% of its GNI. While much of this is attributed to its support for Egypt, the UAE has grand ambitions to be a significant global aid donor. Australia’s decision to reduce its expenditure on foreign aid means it will drop out of the club of top ten OECD donors and also fall in the global donor generosity rankings. This will likely see Australia lose influence with some development partners and with its peers in framing the global debate on development.   Changing aid management Soon after coming to power in September 2013, the Abbott Government announced the integration of AusAID, Australia’s stand-alone aid agency with the Department of Foreign Affairs and Trade – to enable the closer alignment of the aid and diplomatic arms of Australia’s international policy agenda. The merger was effected in November 2013 and fully implemented by June 2014. Australian Foreign Minister Julie Bishop announced a new paradigm for the Australian foreign aid program in June 2014. She said that expanding opportunities for people, businesses and communities is the key to both promoting economic growth and reducing poverty. The aid program would now provide a sharper focus on investing in drivers of economic growth, including trade, infrastructure; education and health; and empowering women and girls to create new jobs and opportunities that lift people out of poverty. On Monday 21 September 2015, following a cabinet reshuffle by Australia’s new Prime Minister Malcolm Turnbull, a new Ministerial position was created that covers management of Australia’s aid program. Steven Ciobo, formerly Parliamentary Secretary to the Minister for Foreign Affairs and to the Minister for Trade and Investment, was promoted to become Australia's first Minister for International Development and the Pacific. More direct oversight of Australia’s aid program, as well as the Pacific, by Australian politicians is a welcome development.   Climate change financing through Australian aid The COP21 Climate Change talks concluded in Paris in December 2015 with a deal that has been heralded by world leaders as 'the best chance we have to save the one planet we have', while the expert consensus is that it 'has landed more or less where expected'. Australia, however, has made only limited financial commitments to adaptation and mitigation efforts. At the summit Prime Minister Malcolm Turnbull pledged A$1 billion over the next five years, to be drawn from ‘our existing aid program’. That equates to roughly 5% of Australia’s total aid spending over that period. It is not clear if this funding will be redirected from other areas of the aid program or will come out of existing aid funding already going to adaptation and mitigation projects in the region. Robin Davies from the Development Policy Centre argues that this is about half the amount one would consider a credible, let alone fair, contribution to the global financing effort and puts Australia squarely at the bottom of the rankings of countries contributing to the fight against climate change.   Australian aid in the Pacific There are a number of reasons Foreign Minister Julie Bishop would have quarantined the Pacific from the largest cuts ever to Australia's aid program, including the fact that unlike countries in Southeast Asia, which are moving away from reliance on aid, a number of Pacific Island countries will be aid dependent for the foreseeable future. Australia also still remains by far the largest donor in the Pacific Islands region. The latest data from the OECD Development Assistance Committee shows that Australia has a 60% share of total aid from OECD countries to the Pacific Islands region. Between 2006 and 2013, Australia provided US$7 billion in bilateral aid to the region to 16 countries. The US was the next-largest donor, providing US$1.65 billion in bilateral aid to nine countries. China is also emerging as a prominent donor in the region, but still falls far behind Australia’s level of investment.  Australian Foreign Minister Julie Bishop is committed to ensuring that Australia remains the 'partner of choice' for Pacific Island countries. Shoring up current levels of aid is important to maintaining Australia's dominance as a donor in the face of increasing interest in the region from China and other emerging donors.   WHAT THE LOWY INSTITUTE DOES The Lowy Institute’s 2014 Poll asked Australians whether ‘promoting Australia’s foreign policy objectives’ or ‘helping reduce poverty in poor countries’ was the most important objective of Australia’s foreign aid program. A significant majority of Australians (75%) say ‘helping reduce poverty in poor countries’ is the most important objective. Only 20% of Australians identify ‘promoting Australia’s foreign policy objectives’ as the most important objective of the program. Melanesia Program Director Jenny Hayward-Jones published a Lowy Institute Analysis in 2013, Big enough for all of us: geo-strategic competition in the Pacific Islands, which highlighted Australia’s dominance as an aid partner for the Pacific Islands region. This Analysis, drawing on research on Chinese aid by Lowy Institute Research Fellow Philippa Brant, found that concerns about China seeking geo-strategic advantage through its aid program in the Pacific Islands were misplaced. The Institute has also published an interactive map of China's aid activities in the Pacific, which demonstrates how China compares with Australia and other traditional partners. The Lowy Institute’s Melanesia Program has convened a number of conferences and roundtable events on the Australian foreign aid program. Nonresident Fellow Annmaree O’Keeffe, Melanesia Program Director Jenny Hayward-Jones and Research Fellow Philippa Brant have all published and convened debate on aid and development issues at the Lowy Institute. Jonathan Pryke, the Melanesia Program’s new Research Fellow, has an extensive background reporting on Australian aid and development issues from his four and a half years at the Development Policy Centre. The Lowy Institute hosted a conference entitled Advancing Innovative Development and Aid Strategies in the Asia-Pacific: Accelerating the Millennium Development Goals in Sydney from 16 to 18 June 2010. The Institute brought together key decision makers from government, civil society, multilateral and country donors, and the private sector with an interest in the Asia-Pacific region. The conference stimulated greater international interest around accelerating progress towards the Millennium Development Goals (MDGs) in the Asia-Pacific region and discussed how aid contributes to development in the region. In July 2011, a high level panel featuring Sandy Hollway, Jack de Groot and Rowan Callick debated how the future state of the world would shape Australia’s aid program. This event accompanied a 2011 report by the Lowy Institute, commissioned by the Australian Government’s Independent Panel to Review Aid. This report looked at what the major influences on global development and aid were likely to be over the rest of the decade to 2020 and suggested there would need to be a rebalancing of the imperatives of Australian aid policy much more in favour of geopolitical and national interest considerations.