The UK’s aid cuts: where will they fall? And how big the implications for global aid flows?
By: Joseph Holden
Tags: International Development, Foreign Policy, UK, Africa, Global

The UK’s aid cuts: where will they fall? And how big the implications for global aid flows? Joseph Holden Feb 25·13 min read

Summary

The UK provides 8 percent of global aid, £15 billion in 2019, compared to its 2.4% of global GDP.

The double aid cut from lower GNI due to COVID, while also reducing aid from 0.7% to 0.5% of GNI, will lead to the biggest ever cut to UK aid for the 2021–22 financial year, potentially in excess of £5 billion.

The FCDO’s ‘7 global challenges’ may protect some sector spending, but all spending will still require cuts.

Likely scenarios imply bilateral spend could see Pakistan, Ethiopia, Afghanistan, Nigeria, and Bangladesh potentially have cuts to UK aid of over £200 million; & 15 countries total with £100 million or over cut.

As the UK has been an ‘aid superpower’ the consequences for low income countries can be severe, for example the UK cut in South Sudan could see a 10% reduction in the total global aid they receive, a country in which aid in total is worth 40% of national income.

The impact for sectors is also likely to be severe. Sector spending cuts scenarios could see UK education aid likely reduce by £275-£375 million, and humanitarian aid to reduce by £800-£1000 million.

The potential £600–£800 million cut in health spend would reduce global health aid by 5–6%, in the midst of a global pandemic.

Intro

Since the Department of International Development (DFID) was founded in 1997 by the incoming Labour government under the leadership of Clare Short, the UK has progressively become an ‘aid superpower’. The recent merger of DFID back into the Foreign and Commonwealth Office (FCO) to form the new Foreign, Commonwealth and Development Office (FCDO) has been seen as a major backtrack from UK’s commitment to aid and poverty reduction. Suspicions were widespread at the time this would presage the end of UK’s global leadership in development aid in terms of focussing aid where it is needed most, while meeting the 0.7% target for gross national income (GNI) first adopted by a resolution of the UN General Assembly in 1970. The suspicions have proven correct as in the wake of COVID, the UK government is now undertaking a radical set of cuts to the aid budget.

UK aid is undergoing the largest cut in its history (see Clare Short video below for an excellent summary of that history). The cuts for the 2021/22 financial year (FY2021) are to be severe, programmes are likely to be cut, or ended prematurely, while the pipeline of new programmes has stalled, and there are implications for all sectors which UK aid supports and both bilateral and multilateral spending, with estimates claiming 50–70% in bilateral spending cuts are possible.

The question this post wants to explore is how big this cut is likely to be by country and sector, in particular what are the implications for UK aid cut for overall global aid flows. The analysis is based on the (optimistic) assumption that other countries do not follow the UK’s unfortunate lead in also cutting aid as a result of political pressure and/or priorities in the face of COVID.

The cuts in question have come over two rounds to official development assistance (ODA) announced during 2020: a reduction of £2.9 billion announced in July, then the second cut from 0.7% to 0.5% of gross national income for the 2021/22 fiscal year announced in November 2020 (credit to the excellent Will Worley of Devex a number of whose stories are used as hyperlink sources here). In short, the UK wants to commit a smaller proportion of its smaller national income to international aid.

How much of total global aid does the UK provide?

DFID first reached the 0.7% of GNP target in 2013 and the International Development (Official Development Assistance Target) Act 2015 put this into law (see Annex 2 for a very brief timeline), with the target maintained and met at least up to the 2019/2020 fiscal year.

This has led the UK to provide, as of 2019 (according to OECD data), a total of just over 8 percent of global aid ($18 billion out of global aid worth $215 billion). Given the UK’s economy represents around 2.4 percent of global GDP, the aid budget therefore shows the size of its global ambition and investment.

UK aid spend is spread across a range of bilateral programming as well as a range of multilateral institutions and funds. In 2019, the UK total ODA spend was over £15 billion of which around £10 billion was bilateral spend, and around £5 billion was multilateral. The latter represents the UK’s leading role in a large range of institutions, providing roughly 5 percent of the budget of the many UN organisations including the World Health Organisation, 12 percent of the World Bank’s IDA which provides the largest share of aid contributions to social sectors for many low income countries. In addition, until very recently the UK also provided around 14 percent of the European Union budget, including contribution to Europe’s own very large aid programme.

The UK is also the largest single contributor to the Global Alliance for Vaccines and Immunisation (GAVI) with 26 percent of total funds, to the Global Partnership for Education (with 13 percent of current contributions), and a major contributor to other funds and regional development banks such as the African Development Bank and Asian Development Bank.

In short the description of the UK as an ‘aid superpower’ may not be much of an overstatement.

Table 1 below provides a summary of UK aid spend by sector, its bilateral component and its multilateral component (using OECD data) and as a share of global spend. This shows that the UK contributes approximately 16 percent of global aid spend in health, 8 percent of emergency response spend, 15 percent on conflict, peace & security, and sizeable contributions in almost every sector of aid expenditure.

Table 1: UK aid by sector and as a proportion of global total aid disbursements (2019) in GBP

OECD aid flow by sector data

Figure 1 then shows how sizeable UK aid can be (including its multilateral contributions) for recipient countries, providing for example a quarter of the total global aid received by Syria, Sierra Leone and Pakistan (NB, this aid is across the range of programmes and sectors and most is not provided directly to governments as general or sector budget support). The UK provides over 10 percent of total global aid for at least 21 recipient countries.

Figure 1: UK aid contribution as a proportion of total global aid a country receives (selected countries with the highest total receipts of UK aid)

Source: World Bank World Development Indicators

How big a deal is this?

The world economy is facing its largest contraction in living memory as a result of the pandemic and its catastrophic impact on trade, investment and economic activity. Clearly in this context assuming even moderate effectiveness of the aid spend to its objectives, the timing is bad. In addition as above, the UK’s cut may be mirrored by others.

The effect however for individual low income countries and lower middle income countries, as well as those that are also fragile and conflict-affected, does vary as measured by simple measures of aid dependence. Figure 2 provides a very high level summary as proxied by aid as a proportion of GDP. This shows that a section of fragile countries are relatively more dependent. Thus though Pakistan is the largest recipient of UK bilateral aid (in 2019), it is likely to be relatively much less dependent than others. On the other end of this scale, South Sudan, Somalia and Afghanistan all receive a more sizeable proportion of national income as aid, the absolute amounts may be lower but given how poor the countries are aid is relatively more important. Of course, this does not disaggregate by sector or need, but aid may be funding gaps that would not be provided otherwise, for example in humanitarian aid for refugees, or basic health service provision.

Figure 2: Measures of aid dependence — aid per capita (USD), and aid as a share of GDP