1 Introduction
1. The current financial situation has created a
dangerous time for development. Global Gross Domestic Product
(GDP) is expected to decline by 1.3% in 2009, the first decline
since the Second World War, and to recover only gradually in 2010.[1]
World trade is on track to register its largest fall in 80 years,
with trade flows estimated to be reduced by 9%. [2]
2. Initial predictions that developing countries
would be insulated from the worst of the financial turbulence,
due to their distance from global financial centres, have proved
wrong. Decreasing remittances, currency devaluation, reduced foreign
investment, and falling demand for goods and services are adversely
affecting developing economies and emerging markets. The World
Bank has estimated that, as a result, developing countries will
face a financing gap of between $270 and $700 billion depending
on the severity of the crisis and the strength of policy responses.[3]
3. The cost to developing countries will not just
be financial. Progress towards achieving Millennium Development
Goal (MDG) 1, the eradication of hunger and extreme poverty, has
been set back by three years.[4]
The Department for International Development's (DFID) estimates
show that, by December 2010, an extra 90 million people will be
living on less than $1.25 a day.[5]
The World Health Organisation has warned that the crisis could
result in the deaths of an additional 400,000 children a year.[6]
Support for development
4. The current financial crisis is also testing the
depth of international donor support for development. The UK Government
has said that it will continue to meet the commitments it has
made on aid levels, most recently in the 2009 Budget Statement,[7]
but the position of some other donors is less clear. Reductions
in the level of official development assistance (ODA) would clearly
compound the problems which developing countries are already facing
as well as putting at risk the global targets set for development
expenditure and the likelihood of reaching the Millennium Development
Goals by 2015.
5. Whilst it is vital to ensure that development
assistance from the global community continues to increase, it
is equally important that UK public support for funding aid is
maintained and that DFID's messages are even more effectively
targeted. This could be threatened as the financial crisis continues
to affect the real economy. The number of people who describe
themselves as "very concerned about poverty in developing
countries" fell from 33% in 2006 to 22% in 2008.[8]
The current economic downturn could exacerbate this trend.
DFID's White Paper
6. Soon after we began this inquiry in January, DFID
announced its intention to publish a new White Paper on Eliminating
World Poverty: Assuring our Common Future later this
year and began a consultation process in March. The White Paper
consultation document asked four broad questions:
- How can we support countries
to minimise the impact of the economic downturn on the poor?
- How can we build a low carbon and climate resilient
world?
- How can we create a safer world and the right
conditions for poverty reduction in fragile and conflict-affected
countries?
- How can the international financial institutions
be reformed to deliver development?[9]
7. This report represents our contribution to the
debate on two of these issues: cushioning the impact of the downturn
on the poor; and reform of the international financial institutions.
Our forthcoming report on Sustainable Development in a Changing
Climate will address the question about climate change. We
have published a number of reports on DFID's work in fragile and
conflict-affected states, most recently on the Humanitarian
and Development Situation in the Occupied Palestinian Territories,
Reconstructing Afghanistan and Conflict and Development.[10]
The conclusions and recommendations set out in these reports remain
relevant to DFID's consultation.
Structure of this report
8. The global financial situation is changing rapidly,
as are its impacts upon the developing world. This report focuses
on what we regard as the key issues:
- How the economic downturn is
affecting developing countries and how DFID is monitoring the
situation (Chapter 2);
- The actions that DFID is taking to respond to
the crisis, both in its bilateral programmes and through multilateral
institutions (Chapter 3);
- The effect the downturn has had on international
donor support for development and specifically on official development
assistance (ODA) budgets (Chapter 4);
- How the international community can properly
support developing countries to raise their own revenue, through
trade and taxation (Chapter 5);
- The steps DFID proposes to take to maintain and
strengthen UK public support for development in the challenging
context of the economic downturn (Chapter 6).
Our inquiry
9. As part of this inquiry we conducted an on-line
consultation (eConsultation) in which we asked the public to respond
to questions about their views on aid and development. We also
held two public meetings, in Leeds and Bradford, where a range
of development issues were discussed. This enabled us to reach
out beyond our normal stakeholder group of academics, non-governmental
organisations (NGOs) and official bodies and to provide members
of the public with the opportunity to share their views on these
subjects with us. We were particularly interested to hear whether
public attitudes on how the UK should help developing countries
had changed since the onset of the downturn. A full account of
the on-line consultation can be found as an Annex to this report.[11]
10. We received written evidence from 18 organisations
and individuals. We held five oral evidence sessions. Unusually,
the Secretary of State for International Development appeared
before us twice in this inquiry. First, in January, specifically
on the outcomes of the Doha Financing for Development conference
(held in December 2008) and then at the end of the inquiry in
April. We also heard from representatives of NGOs and academics;
the Chair of the Development Assistance Committee of the Organisation
for Economic Co-operation and Development (OECD DAC), and the
European Commission. We would like to thank all those who contributed
to our inquiry.
1 International Monetary Fund, World Economic Outlook:
Crisis and Recovery, April 2009, p xv Back
2
Q 239 Back
3
World Bank, Swimming against the tide: how developing countries
are coping with the global crisis: Background paper prepared
for the G20 Finance Ministers and Central Bank Governors Meeting,
Horsham, on 13-14 March 2009, March 2009, p 1 Back
4
Q 239 Back
5
Q 239. The World Bank's measure of extreme poverty. Back
6
"Downturn could kill 400,000 children, warns health expert",
The Times, 14 March 2009 Back
7
"Budget 2009 - keeping our promises to the world's poorest
people", DFID Press Release, 22 April 2009 Back
8
Q 122 [Hetan Shah] Back
9
DFID, Eliminating World Poverty: Assuring our Common Future:
A consultation document, March 2009 Back
10
International Development Committee, Eleventh Report of Session
2007-2008, The Humanitarian and Development Situation in the
Occupied Palestinian Territories, HC 522; Fourth Report of
Session 2007-2008, Reconstructing Afghanistan, HC 65; and
Sixth Report of Session 2005-2006, Conflict and Development:
Peacebuilding and Post-conflict Reconstruction, HC 923 Back
11
See p 60. Back
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