What will happen if refugee costs reach $50B?

The cost of supporting refugees could reach over $50 billion this year, mostly as a result of the war in Ukraine. That’s more than five times the cost of supporting refugees last year, and it has the potential to seriously impact other official development assistance budgets. Under rules agreed by the Organisation for Economic Co-operation and Development, when donors support refugees on their own soil, they are allowed to count some of the costs from the first year as ODA. This funding is known as in-donor refugee costs. A recent estimate from the ONE Campaign and SEEK Development, which lobbies for anti-poverty policies, suggests that donors’ internal costs for looking after refugees could be $47.2 billion in 2022 — around 27% of ODA spent in 2021. But that figure is based on current refugee numbers, and on the historical cost of housing refugees over the last four years. More refugees are expected, and many donors have already reported that costs will be far higher than they were historically, likely as a result of increases in the cost of living. The figure has already been revised upwards several times, and ONE and other analysts say the actual figure could well pass $50 billion. The impact could last well into 2023. Since Ukrainian refugees began arriving in other states at the start of the war in late February and continue to arrive in donor countries to this day, there is also likely to be a significant impact on next year’s ODA. Typically, in-donor refugee costs have hovered around $10 billion a year. The last time costs spiked was when Europe faced an influx of Syrian refugees in 2016, but at that point costs rose only to around $18.4 billion, which was then 11% of ODA. The refugee costs this year come on top of around $45 billion in direct economic assistance and humanitarian aid to Ukraine, of which ONE estimates around $27.2 billion will also count as ODA. The war’s impact on ODA As a result, development experts are worried about how the aid for the conflict will affect other funding priorities. “You factor in the increasing costs of the reverberations of the Ukraine war, the food crisis, the effect that inflation is having on prices and in-country budgets … and it's really not looking good for the next few years.” --— Sara Harcourt, senior policy director for development finance, ONE Campaign The total ODA budget of donor countries was just under $170 billion in 2021, including around $9.3 billion of in-donor refugee costs. With the costs of the war now more than a third of all ODA, what will happen to other development spending? The United Kingdom has already made it clear that it will cut enough ODA to cover all the cost of Ukrainian refugees. Nordic countries have announced some cuts to other programs but have said they will also increase ODA. The biggest impacts of refugee costs are likely to be in Germany and Poland. Poland has taken in more than 1.4 million refugees. A local think tank, the Polish Economic Institute, estimates it spent $5.3 billion — more than 1% of the gross domestic product — to support them in just the first three months of the war. That figure is double ONE’s estimate based on historic figures, although PEI’s figure includes spending by private citizens. Germany, meanwhile, has taken in almost a million refugees. It is expected to count refugee costs as ODA, but not to make cuts to existing flows this year, although it has proposed ODA cuts from next year. Germany is estimated by ONE to be facing an additional bill of more than $15 billion to house refugees. The biggest spender on direct aid to Ukraine has been the United States, which ONE estimates has contributed $17.9 billion of aid that could be counted as ODA. This is expected to largely be additional to planned existing ODA flows. Sara Harcourt, senior policy director for development finance at ONE, suggested the combined effect of these figures could potentially have a significant impact on aid in other parts of the world. “You factor in the increasing costs of the reverberations of the Ukraine war, the food crisis, the effect that inflation is having on prices and in-country budgets,” she said, “and it's really not looking good for the next few years.” She said that she was also concerned about reconstruction costs for Ukraine, which some estimates have placed as high as a trillion dollars. “Even if that’s spread over five years, that's 150 to 200 billion per year,” she said. “That has to come from somewhere. And I think a lot of that would probably come from donors and aid budgets. That's equivalent to the entire global aid budget. So something's got to give.” Accounting for in-donor refugee costs Euan Ritchie, a senior policy adviser at Development Initiatives, said the figures also showed the difficulty of including in-donor refugee costs in aid budgets. He said that there were arguments for including spending on in-donor refugees in ODA — because it represented efforts by donors — but that on balance, he did not find these convincing. “I think most people argue that it shouldn't be included in ODA because it doesn't represent a flow to developing countries,” he said. “You know, it's great that the U.K. or France or wherever want to spend money on housing refugees. That's fantastic. It just doesn't have anything to do with development. “At the same time, in-donor refugee costs is one of the most volatile areas. When countries are wedded to having a fixed target, it's going to lead to cost cutting to other programs, if you're going to try and keep your ODA-to-GNI ratio the same. So I think there are practical reasons for not wanting in-donor refugee costs in ODA as well as principled ones.” A central refugee fund? One problem with the current system is that when Development Assistance Committee countries take in refugees, they are allowed to deduct funding for that from other budgets. But countries which do not make significant aid contributions do not have the same ability to write off the cost of housing refugees against other commitments. One solution would be to create a global fund to pay for the support of refugees, which would be accessible to all countries, and would make it easier for countries to cope with a sudden influx of refugees in the event of a crisis. Ritchie said there had been efforts to produce this kind of central fund. “But I don’t think they were particularly successful,” he said, “because the politics around accepting refugees was so toxic. It may be different now.”