How do we fix aid?

Amid a disastrous year for aid, the U.K.’s foreign secretary, David Lammy, is proposing a summit of Western donors to discuss its future. “There has been a need for a deeper and more meaningful conversation about Western development [aid] for many, many years,” he told members of the House of Lords in April, responding to a question about the impact of aid cuts. He argued that many of the international aid structures set up 60 years ago were in need of reform, citing the growth of non-Western donors such as China and the Persian Gulf States and the apparent inefficiencies of a large and unwieldy United Nations. “I want to have a conference that brings together the Western community on development and aid and how we spend that aid, because the time is now right for leadership and it’s also right [to be] sharper and smarter about the way we spend our money,” he said. Lammy’s Foreign, Commonwealth, and Development Office told Devex it couldn’t provide further details of the proposed summit at the time of writing — and some people are skeptical as to whether the United Kingdom is the right country to be leading such a conversation due to its recently decimated aid budget. Nonetheless, it is just one of several similar ideas circulating at the moment. For example, the new German coalition government has proposed a North-South Commission on development cooperation — echoing historic commissions such as the Pearson Commission of 1968 and the Brandt Commission of 1977, which was led by former German Chancellor Willy Brandt, that helped to define the shape of international development. There have been frustrations with the current aid system, and discussions about reforming it, for years. While the disintegration of U.S. aid and cuts across Europe have had devastating consequences, it has also led many to ask whether this moment of collapse might present an opportunity to rebuild a better system. As one civil society representative put it in a recent report from the think tank ODI Global: “Ten years ago, we thought we could reform the system incrementally. … Today, it will be burned down before we have meaningful progress. Can we get ahead of that by redesigning the system?” And if so, what might that look like? 1. Narrow the focus For Danny Sriskandarajah, chief executive of the New Economics Foundation and former chief executive of Oxfam GB, this is “as good an opportunity as we’ve had for years, and will probably have for years more,” to fix the problems with aid. The system was short of cash long before the drastic cuts that have recently hit it, and the first reform that many people are talking about is the need to narrow its focus. Some aid advocates believe that an inadequate budget is being stretched too thin across too many goals to have a real impact. Most notably, they argue that efforts such as in-donor refugee support and climate mitigation — which are desirable in their own rights — require their own budgets rather than diverting billions from funds intended for the lowest-income countries and communities, which should be the focus of official development assistance, or ODA. “The aid system was built to be about poverty reduction and development in the poorest countries,” Sriskandarajah said. Yet, he said, “analysis after analysis” shows that a relatively small proportion of the money reaches those countries. For example, OECD figures show that less than a quarter of ODA went to the least developed countries in 2023. Meanwhile, many billions of dollars of aid each year never leaves the donor countries, as it’s spent supporting refugees or is paid to institutions to undertake development work. Some aid advocates also worry that too much is spent in middle-income countries where other sources of finance might be available. David Miliband — the British politician turned CEO of the International Rescue Committee — is among those who believe that the sector needs to narrow its focus to increase its impact. “The aid system can’t do everything on its plate with the money it currently has. … Over the last 10 years, with the launch of the 17 Sustainable Development Goals in 2015, and especially since Covid, aid funds have been used for a range of goals, each desirable in and of themselves, but increasingly in competition with the immediate needs of the poorest people,” he told an audience at Chatham House in April. While poverty is increasingly concentrated in conflict-affected states, Miliband said, “The focus of the aid budget is being diluted across multiple priorities,” even as its overall size is being reduced. It would be more effective to focus aid where it’s needed most, he suggested, while leveraging non-aid money — such as private finance and public-private partnerships — in other areas. The latest report from ODI’s Donors in a Post-Aid World series — which since last year has been bringing together development professionals from the global north and south to discuss some of these issues — described the present moment as “an opportunity to refocus ODA on the most vulnerable.” It said donors should clearly identify the criteria they will use to achieve that, safeguarding critical programming for the least developed countries, the most vulnerable populations in low-income countries, and humanitarian crises. 2. Widen the donor base The OECD’s Development Assistance Committee — which sets the rules on ODA spending and tracks the flow of funds — is still mostly made up of Western donors in North America and Europe, plus Japan, Korea, and Australia. But the geographic distribution of wealth has changed a lot. Given recent cuts in the U.S. and Europe, many are looking beyond that pool of traditional aid donors to countries such as China and Saudi Arabia — which could increase the overall pot of funding, and mitigate the exposure of global south countries to political volatility in individual countries or regions. “The G7 group of industrialized democracies constitutes 30 per cent of global GDP and 75 per cent of foreign aid,” Miliband said. “It is legitimate to … call on newly wealthy countries, notably in the Gulf but also elsewhere, to play their full part in helping those left behind by globalization.” In fact, some of these countries do provide aid — and there were early reports of China stepping in to fill some of the gaps left by the U.S. Agency for International Development. But because they are not members of DAC, they are not governed by the rules on how aid should be spent — even if many aid advocates believe those rules have become far too broad. Increasing funding from these countries and better incorporating them into the global aid architecture — with narrower rules and a clearer focus — could make a real impact. 3. Move to pooled funds with assessed contributions For some commentators, however, this by itself would simply shift the problems of the old system onto a new set of relationships. A better system, they believe, would involve all countries paying into pooled funds that could then be distributed directly to address particular issues such as health, climate, or support for refugees. Nilima Gulrajani, principal research fellow at ODI who leads the Donors in a Post-Aid World series, said that while there are benefits to having a wider donor base, it does not alter the fundamental dynamic, where countries in the global south remain dependent on outside donors. “The fact that you have alternative sources of resources — in the form of Chinese investment, Gulf investment — I think gives more leverage to leaders in the global south and more space to move. … [But] does that reduce dependency or does that [just] shift the source of capital away from the western world towards alternative, non-traditional players?” Gulrajani said. Instead, participants in the latest ODI report suggested the creation of pooled funds that all countries would pay into — breaking down the distinction between donor and recipient — but from which only local networks and organizations could draw. Sriskandarajah has come to the same conclusion: Mandatory contributions from all, based on GDP or other metrics. “I think [aid contributions] should be more universal,” he said. “It should be based on assessed contributions, not on voluntary contributions.” “It should be potentially more multistakeholder. Why couldn’t we have large corporates contribute to some of this [for example]? There are ways that you could do this in a much more 21st-century, multistakeholder way,” he said. Sriskandarajah gives a specific example: “Let’s say the world decides that we need a global pooled funding mechanism to save lives in humanitarian emergencies, in an agreed set of emergencies. … And for these things, there will be a new global humanitarian fund … done through assessed contributions … and why not? We [already] have assessed contributions for all sorts of other things.” Efficiencies would be gained by cutting out the many intermediaries that populate the current system, he suggested. With the hypothetical pooled humanitarian fund, for example, “disbursement only goes in-country, and on pre-agreed terms, to first responders — primarily the government, but hopefully other [local] actors as well.” By redefining the relationship between “donor” and “recipient,” such a model would build on the conversations around localizing and decolonizing the aid system that has been gaining momentum for many years. 4. Build new institutions and streamline the old ones What would happen in this scenario to the global aid architecture that was set up after the Second World War, and which still stands today — notably the United Nations and the Bretton Woods institutions: the World Bank and the International Monetary Fund? There is likely still a role for these institutions but many people say they need to be substantially streamlined, with a clear strategy around which institutions do what. Some also believe that radical reform may require new institutions built outside of the current structures The U.N. in particular has come under fire in discussions about the global aid architecture, even as it faces an existential crisis due to dwindling funds. There is a sense that mission creep has caused it to become unnecessarily large in the 80 years since it was founded, gobbling up funds and becoming a barrier to impact in some cases. In his comments to the House of Lords, Lammy criticized duplication in the U.N. system. “All of us have been in developing countries, all of us have seen the jeeps, all of us have seen the different U.N. logos, and some of us have wondered why it took 19 different U.N. agencies in some countries, sometimes duplicating effort,” he said. That was echoed in the ODI report, which quoted one donor representative as asking: “Do we need both UN Women and UNFPA? Do UNAIDS, WHO, the Global Fund and GAVI need to be distinct organisations?” Few deny that these institutions need reform, with an eye on efficiency gains but also increasing impact and creating more voice for global south countries, in a geopolitical landscape that is very different from that of 80 years ago. There is an ongoing attempt at multilateral development bank reform, while the U.N. has just launched its own reform initiative, UN80 — although this is widely viewed as a series of short-term measures to balance the budget in the face of reduced U.S. funding, rather than a serious attempt at wide-scale reform. When it comes to development work, said Gulrajani, we need to “think about what is strategic for the UN [to be] doing vis-a-vis any other actor, whether that be the IFIs [international financial institutions] or the bilateral system.” But Sriskandarajah worries that reform efforts won’t bring about sufficient change and that maybe multilateral institutions need to be rebuilt from the ground up. “I do wonder whether now it’s just about birthing the new outside the existing,” he said, adding, “We need to reimagine what these mechanisms might look like.” 5. Address the real issues There is also a bigger picture that goes beyond aid. For many advocates, aid often acts as a Band-Aid for the real issues driving global economic inequality — primarily inequitable trade, tax, and debt policies. And so just as important as fixing the aid system are other measures that donors can take to support development in the global south. Chief among these is debt reform. Analysis of OECD and World Bank figures showed that, in 2023, global south countries paid out more in debt repayments than they received in loans and aid. As a result, many low-income countries are forced to spend their own funds on servicing their debts rather than on health, education, or poverty alleviation measures. “In my view, we are in a world where we need to develop a pathway to how we sunset ODA.” --— Nilima Gulrajani, principal research fellow, ODI Global Debt relief and cancellation efforts — which could have a huge impact on development — are complicated by the involvement of private creditors in many deals. However, advocates argue there are steps that global north governments and international financial institutions could take to ease the pressure in the short term and also to limit the same problems arising in the long term. Similarly, more equitable tax and trade policies could — in the eyes of many advocates — fundamentally address the drivers of economic inequality in a way that aid never will. While the short-term view is about mitigating the damage caused by the cuts, “the long-term view is really about how we build a pathway to reduce dependency [on aid] and think about a much more broad-based basket of policies that … address global inequality,” Gulrajani said. Some of these policy changes will create economic costs for global north countries, she acknowledged. But they don’t require a dedicated annual budget or come with the operating costs that aid does, and in that sense, they could be a politically palatable option for governments that currently give ODA. We need to think about “the intersections of trade, tax, policy, migration and how cumulatively they can probably do a far better job than aid as a Band-Aid,” Gulrajani suggested. “In my view, we are in a world where we need to develop a pathway to how we sunset ODA.” Could it happen? How likely is any of this to happen? Gulrajani fears that the significant security pressures that many donors are feeling right now will impose themselves on any attempts at aid reform. In the U.K.’s case, the aid budget was cut explicitly to pay for defense, and Nato countries have just agreed to increase their defense spending. In this environment, Gulrajani worries that defense spending may be shoehorned into remaining aid budgets, or that aid budgets might be culled without any accompanying rethink of the system. The sense of insecurity that populations in many countries are feeling “risks … overshadowing everything that we try and do at the minute, such that we don’t make much progress,” she said. Even so, she described herself as cautiously optimistic. “There are conversations happening that would not have happened had it not been for the kind of radical shake-up,” she said. For Sriskandarajah, it starts with small steps. He suggests a process of “minilateral demonstrations,” where small groups of governments get together to try things out and demonstrate what’s possible. He backed the idea of a new, independent commission, following in the footsteps of the 1968 Pearson Commission, which was borne out of frustration with the lack of progress in development and “in some ways was the beginning of the formalization of the aid sector as we currently know it,” he said. The biggest risk, he said, is that we’re held back by a “crisis of imagination.” “So much of our energy … has been [spent] trying to defend the present [system] because we fear that if we don’t it will just disappear and nothing will replace it — and that is still the risk. … But we’ve got to back some of these ideas because otherwise, we’ll end up just trying to defend the system until there’s nothing left,” he said.