How soaring inflation and weak currencies have put pressure on NGOs

The global economy is grappling with historic levels of inflation which in turn is putting enormous pressure on currencies. Low-income countries have been hit hard by these twin crises. Ghana’s inflation rate hasn’t been this high for nearly a quarter century. The West African nation’s currency, the Cedi, lost more than half of its value in 2022. A similar situation is unfolding in Pakistan where the country is on the brink of a currency crisis. Meanwhile, Nigeria, Africa’s largest economy, is confronting double-digit inflation with the Naira, the nation’s currency, at historic levels of depreciation. The African Development Bank said in its latest economic update for the continent that inflation hit double digits in 19 African countries. And the AfDB projects that currency struggles are set to persist for some of the larger economies on the continent. This has enormous implications for aid organizations operating in these countries. The cost of doing business has soared and budgets have come under pressure, at the same time that many beneficiaries have faced increased hardship. “At a global level, we do face this challenge of rising costs and resources,” said Gwen Hines, chief executive officer of Save the Children UK. “I think for me, though, the bigger issue is what this obviously does to the families, the children.” Devex spoke to Hines at a time when the British pound had been experiencing historic struggles. In September, the pound hit record lows against the U.S. dollar, meaning that for some organizations, their budgets were diminished in value overnight. For Save the Children, the multinational nature of the organization helped it mitigate some of the volatility of struggling currencies. With 30 members working across 120 countries, the organization operates as a federation. “Across our movement, because we do have a mixture of dollars, pounds, or euros and all sorts of different currencies, we are able to balance those to a certain extent,” Hines said. “We mustn't let economic turbulence get in the way of prioritizing the things that matter.” --— Tim Wainwright, chief executive, WaterAid UK WaterAid leaned into its own federation operation style to confront the challenge of weakening currencies. Similarly, as the British pound struggled against the dollar, the funding that came from dollar donors helped offset some of the high costs WaterAid had seen from high inflation and a weaker currency that hit its British operations. Save the Children staff work in their own countries, Hines pointed out, and their funding is locally-based, meaning that less money moves across borders and falls under the vagaries of exchange rates. What have funders done? Some funders have shifted their giving to compensate for rising prices. Others have not. “Some funders are sympathetic and say, ‘okay, I understand that we didn't so much give you a $30 million intervention, and we gave you an intervention to help 30,000 kids learn. So we will therefore adjust,’” Hines said. “Some are very much more, that was the price. And that's all we've got. And then you have to adjust what's actually possible.” In a country like Mali, which has seen disruptions from insecurity, COVID-19, inflation and a falling currency, Hines told Devex that Save the Children tried to focus everyone’s attention, including donors, on the mission of their work. “The intended goal here, you know, is trying to make sure kids learn,” Hines said. “And we would always encourage people who fund us, particularly, you know, big philanthropists, government donors, we are trying to say to them, ‘back the results you want, not back the inputs.’” Kelly Parsons, WaterAid America’s chief executive officer, said it was also important to communicate with donors early about these challenges instead of at the end of a project cycle. Donor flexibility is key as well. “In our experience, I think we've seen extraordinary flexibility and COVID brought that to life. And we're going to test it again in the coming months also. But so far, we're seeing good signs,” Parsons said. Hines said that Save the Children had also been experimenting with ways to protect deliveries from changing prices. She pointed to a partnership with Barclays and Standard Chartered banks on a new technology tool that, in Afghanistan, provides vouchers that buy goods to those in need instead of giving raw cash. “It was adjusted between the vendor and the funders [so] it buys a bag of rice at a certain size. It doesn't say we're going to give you $1 and then see what that dollar can buy,” she said. But sometimes it is as simple as needing more funding. “If the cost of goods and the cost of food in that market are going up, then yes, you do need more money to help the families,” Hines said. “We will always try and argue that, you know, these are the most vulnerable people, or $20 a month is not a lot. And so we should always try and top up where we can. “What we sometimes do, if we can, is try and persuade, if that particular funder won't top something up, we will ask others to top it up,” she added. Another hurdle is the nature of how aid funding works. Donors sometimes provide funding at the beginning of multi-year projects . In an environment of high inflation and deteriorating currencies, the original budget of a project may have less value than initially projected, some development organizations say. “You're getting what they committed to, but it's not able to pay for the impact that the grant we've committed to,” said Rowena Warren, the director of finance and resources at the British nonprofit Ripple Effect, which operates in six African countries. Ripple Effect has tried to go back to its donors and explain what Warren called the “double whammy” of high inflation and weakening currencies was doing to their funds. Ripple Effect was hit by the dip in the value of sterling in the fall and the organization lost about 2% of that budget and the impact on running costs was more severe, Warren estimated. “Most charitable organizations struggle to raise unrestricted funds. And to pay for foreign exchange losses, to pay for inflation, we have to use unrestricted funds,” Warren told Devex, referring to cash nonprofits use to meet their goals. “So whilst it might not seem like a big number, the fact that we have to use unrestricted funds for that means that it's really, really difficult to fund that shortfall.” Warren said that her organization was having to contemplate delivering less with less. “We'd say, for example, we were going to work with 2,000 people, we are now only able to work with 1,000 people,” she said. “We would still deliver the project, but we might not be able to …achieve the full impact that we would have hoped for.” Ripple Effect’s work involves more than one weekly training delivered on fields in rural communities. Due to the high costs of operations, the organization cut back on visits, blunting the impact of its work, Fred Ochieng, Ripple Effect’s Africa director, told Devex last year. Ochieng cited the example of Ethiopia, one of the countries that Ripple Effect operates in. With inflation north of 30%, families who survived on $1 a day had to eke out a living on even less than that. “You'll find now that $1 is able to probably just do about two-thirds of what they would previously, so everything has gone up. And so even our targeting in terms of where we are trying to push families to get to is now much harder for them than it was previously,” Ochieng said. How long will the problems last? Ripple Effect is planning for the period of high inflation and depreciating currencies to last through 2023. Warren said the organization will look to raise more unrestricted funds and potentially tap into its reserves. “We are also really trying to increase our income in the country of [our operations],” she said. “We're looking at corporates, so corporates in countries or corporates in Kenya or Uganda, really looking at how we develop those relationships.” Tim Wainwright, head of WaterAid UK, warned against tightening belts during economic downturns. “We mustn't let economic turbulence get in the way of prioritizing the things that matter,” he told Devex. “Right across the board, people are beginning to wake up to the fact that there are huge risks around water in the world. And therefore, investments should be made, in spite of the fact that it may be that all kinds of organizations are finding money tough at the moment,” he added.