Conclusions and recommendations
Impact of the downturn on developing countries
1. The
rapidly changing nature of the economic crisis makes it essential
that DFID is able to respond quickly and flexibly to the different
impacts on partner countries. To do this, it needs reliable and
frequently updated information. We are impressed by steps DFID
has taken to date to analyse the impact on developing countries
and its recent efforts to ensure research findings are communicated
to policy-makers through the creation of the Global Poverty Alert
System. However, the first findings from the new Alert System
are not expected to be available until September. Given the real
and serious effects that the downturn is having on the poorest
people in the world, we would expect DFID to take this initiative
forward with greater urgency. We recommend that the Department
works with the UN to ensure that the benefits of this new system
are available to inform high level political decision-making within
the next few months. We also request the Department to provide
further details, in its response to this Report, on how the Alert
System is operating in practice, how it will influence policy
and the extent to which DFID is able to respond quickly and flexibly
to increased pressure. (Paragraph 23)
Responding to the crisis
2. We
commend DFID's focus on funding social protection programmes
which have been shown to play a vital role in protecting the poorest
people in the poorest countries from the worst effects of economic
crises. However, DFID must work closely with partner governments
to ensure coverage of these programmes is sufficient to reach
those with the greatest need. (Paragraph 33)
3. Donor investment
in infrastructure not only provides developing countries with
a source of employment but will also enable them to emerge from
this recession with a stronger economy. We welcome DFID's decision
to provide significant funds for infrastructure projects as part
of its response to the downturn. The scale of the North-South
Corridor project in Africa gives it huge potential to boost trade
and economic development in the continent. We request the Department,
in its response to this Report, to provide an update on progress
with the project. (Paragraph 37)
4. We fully support
DFID's decision to fund the Global Trade Liquidity Programme.
Ensuring the availability of trade finance is an important part
of supporting small and medium sized businesses in poor countries
and thereby sustaining economic development. It is vital that
the aim for the Programme to be operational in May is achieved.
We request that DFID, in its response to this Report, provides
us with an update on the amount of funding which has been disbursed,
and to which countries. (Paragraph 40)
Outcomes of the G20 summit
5. The
funding commitments made at the G20 London Summit are very welcome.
However, uncertainty and lack of clarity remain on the detail
of how the pledges will be delivered. We recommend that the UK
Government maintain pressure on G20 partners to honour their commitments
and on the international financial institutions to ensure that
the benefits of these commitments are felt by poor countries at
the earliest opportunity. (Paragraph 43)
6. We agree with the
Secretary of State that it was in everyone's interest for the
IMF to be recapitalised. But this, in itself, is not enough to
support developing countries through the downturn. The UK needs
to continue to engage with the IMF to ensure that this additional
money is rapidly made available to poor countries which need it.
Increasing access limits is an important first step. DFID must
also ensure that the conditions attached to IMF loans are reduced
and that they are consistent with the aim of reducing poverty
and promoting growth in the world's poorest countries. The sale
of IMF gold reserves seems a sensible way to increase the concessionality
of the rate at which IMF loans are made. We request that DFID,
in response to this Report, provides us with more details on progress
with the sale. (Paragraph 50)
7. We agree that the
multilateral development banks, and particularly the World Bank,
should make the most effective use of the funds they already have
on their balance sheets to maximise poverty reduction outcomes.
At a time when other donors are having to take hard decisions
on spending, it is clearly welcome that the Banks can increase
their lending by $100 billion. DFID has pressed for this and
we are pleased that it has won the argument. It should now maintain
its engagement with the Banks to ensure funds are disbursed rapidly
to poor countries most affected by the downturn. (Paragraph 53)
8. We are glad that
the World Bank is becoming a more agile institution which can
respond more rapidly to the needs of developing countries. However,
much progress remains to be made by the international financial
institutions (IFIs) to ensure that the gap between approving funds
and disbursing them is as short as possible. DFID has played a
leading role to date in pushing for these changes and it is the
largest contributor to the World Bank's International Development
Association. It is entitled to continue to press the IFIs to improve
their performance in this regard. (Paragraph 57)
9. If developing countries
are going to be properly represented in decisions on how the global
community responds to the current economic crisis, reform of the
international financial institutions (IFIs) needs to take place
without further delay. The UK Government clearly understands the
need for reform and we accept that it is not prepared simply to
"write a cheque and walk away". But the timescale set
out at the London summit, with no new reforms to be agreed, let
alone implemented, until next year at the earliest, fails to respond
to the urgent need. We reiterate our view that DFID, as one of
the highest donors to the World Bank, must continue to use its
leverage at every opportunity to press for swifter reform of the
IFIs, particularly in relation to the representation of developing
countries on the World Bank board. (Paragraph 65)
10. We welcome the
creation of the World Bank's Vulnerability Fund—developing
countries need large and dedicated sums to support them through
the downturn. We do, however, agree with the Secretary of State
that setting a target of dedicating 0.7% of stimulus packages
to this new Fund could cause confusion and undermine international
resolve to achieve the long-standing and much more ambitious commitment
to allocate 0.7% of Gross National Income to official development
assistance by 2015. Nevertheless, we believe that the premise
which underlies the World Bank President's proposal is valid:
if rich countries can find substantial sums to boost their own
economies, they should recognise the pressing need in poor countries
and identify dedicated sums, additional to existing pledges, to
assist them. We invite the Secretary of State, in response to
this Report, to indicate how the UK is responding to the World
Bank President's proposal. (Paragraph 69)
Donor support for development
11. We
welcome the UK Government's clear determination to fulfil its
pledge to allocate 0.7% of Gross National Income to Official Development
Assistance by 2013. The increase in DFID's funding of nearly £1
billion in the next financial year, confirmed in the 2009 Budget,
is a significant step towards achieving this goal and sends an
important message to other donors and to partner countries about
the UK's commitment to international development. (Paragraph 72)
12. We accept that
currency fluctuations are a normal occurrence with which all development
agencies have to deal. However, the movements in sterling in recent
months have been the most extreme in many years and this is bound
to have an impact on DFID's spending power. We request that DFID,
in its response to this Report, provides us with a update on how
its budget for the current financial year has been adjusted to
cope with this challenge. We would also be grateful to know the
outcome of its deliberations on the Treasury's proposal to allow
Departments to ensure the predictability of foreign exchange commitments
by entering into hedging transactions. (Paragraph 79)
13. Whilst we accept
the need for the UK Government to reduce public expenditure, the
announcement of further departmental efficiency savings reinforces
our concerns about DFID's ability to meet its objectives of poverty
reduction in the world's poorest countries. As we have pointed
out, DFID is unusual in being a Department with an increasing
budget and a reducing headcount. The countries in which it now
operates are increasingly more fragile ones and therefore likely
to be more labour-intensive. We reiterate that it would be regrettable
if "efficiency" measures actually made the Department
less effective. We shall return to this subject in our inquiry
later this year into the DFID Annual Report 2009. (Paragraph 82)
14. We note that the
OECD's projections of aid expenditure by Development Assistance
Committee countries continue to show an upward trend. We are,
however, concerned that these may be over-optimistic and do not
provide a true reflection of countries' intentions. We are alarmed
by Italy's decision to make a substantial reduction in its ODA
budget, particularly in the context of Italy holding the G8 presidency.
Its actions could send out the wrong signals about donors' intentions
and cause development assistance to drop off the international
agenda. We urge the UK Government to make strenuous efforts to
ensure that assistance to poor countries remains at the heart
of international discussions held during the ongoing economic
crisis and thereby build on the achievements which the London
summit delivered for developing countries. (Paragraph 85)
15. Whilst the UK
Government has indicated that it will honour its commitments to
developing countries, despite the onset of the recession, not
all countries have done the same. We would encourage DFID to use
every opportunity to press donor partners to continue to meet
the promises they have made on aid levels, particularly in the
context of high-level international meetings. (Paragraph 90)
Aid effectiveness
16. The
effects of the economic downturn on donors and recipients could
provide the necessary motivation to make more rapid progress on
aid effectiveness. This would produce tangible benefits in the
impact that existing aid levels have on poverty reduction as well
as helping to maintain public support for development. We agree
with the Chairman of the OECD Development Assistance Committee
that the time is over for governments simply "paying lip-service"
to the principles of aid effectiveness set out in the Paris Declaration.
Although DFID has been a good performer to date in implementing
the Paris Declaration principles, there is no room for complacency.
We recommend that the Independent Advisory Committee on Development
Impact (IACDI) consider including evaluation of DFID's progress
towards meeting its Paris Declaration commitments as part of its
future work programme. (Paragraph 94)
17. We believe that
DFID could improve the effectiveness of its development activity
if it made greater use of the expertise that exists within local
government in the UK. We recommend that DFID explore the possibility
of a development partnership with the Local Government Association
and other local government organisations. We will examine this
issue in more detail in our inquiry into Urbanisation and Poverty.
(Paragraph 96)
18. We understand
the difficulties which national budget cycles pose for donors
in setting indicative timetables for reaching the 0.7% goal for
aid allocations by 2015. Agreeing timetables would, however, make
it much easier to assess whether pledges were being met. Just
as importantly, it would greatly assist partner countries in planning
future expenditure by giving them more certainty about the amounts
of aid they would receive and when. We believe the European Commission
should continue to push member states to set timetables. The UK
has a good record on aid predictability and meeting its funding
pledges. Ways must now be found to improve on this as part of
the overall aim of aid effectiveness, notwithstanding the stated
obstacle of the Comprehensive Spending Review cycle. The UK has
set a more ambitious target than other donors, aiming to reach
0.7% of GNI by 2013. We therefore recommend that DFID now sets
out a clear timetable for how this will be achieved over the next
four years which includes annual milestones. (Paragraph 101)
19. We believe that
it is vital that every pound that countries pledge as Official
Development Assistance (ODA) is spent on programmes whose main
purpose is poverty reduction. We recommend that the internationally
agreed definition of ODA is tightened to reflect this. We will
return to the specific issue of the relationship between ODA and
funding for climate change adaptation and mitigation in our forthcoming
report on Sustainable Development in a Changing Climate. (Paragraph
105)
Trade and taxation
20. The
developed world, represented at the G20 meeting in London, accepted
that a new global agreement on trade could boost the global economy
by $150 billion. A successful outcome to the Doha round of World
Trade Organisation negotiations could generate three and a half
times as much revenue for poor countries as they receive in aid.
Unfortunately, acknowledging these facts does not seem to bring
a new world trade agreement any closer. We believe that the rich
world should show its commitment to economic growth in developing
countries by resisting protectionism, offering access to its markets
to poor countries and by finally concluding the pro-development
Doha round of WTO negotiations. Failure to do this could negate
much of the good work which has been done to assist developing
countries to cope with the recession. The UK has taken a strong
position in trying to encourage other countries to resolve their
differences on trade and should continue to engage the US and
the EU on this at every opportunity with a view to making real
progress at the G8 meeting in July. (Paragraph 112)
21. Developing countries
suffer disproportionately from the existence of tax havens which
prevent them receiving much-needed tax revenue which they should
derive from economic activity within their borders. The ending
of tax havens is necessary, not only for reasons of justice but
also to promote good governance and robust management of public
finances in poor countries. We believe that the consensus reached
at the G20 represents an important milestone on the way to reforming
and fully implementing international taxation standards. The UK
Government deserves credit for ensuring this issue was given appropriate
priority at the London summit. Momentum now needs to be maintained.
The UK has an opportunity to make amends for its previous failure
to address this issue by taking urgent steps now to ensure that
British Overseas Territories cease to be tax havens. We do not
believe that the Prime Minister writing to the territories concerned
is sufficient; more direct action must be taken. We request that,
in response to this Report, the Department provides us with an
update on progress with the FCO's work with Overseas Territories
towards their achievement of the OECD's taxation standards. (Paragraph
120)
Public support for development
22. If
DFID is to build public support for development effectively it
needs first to establish what people's attitudes are. This requires
the collection of information that truly reflects public opinion.
We do not believe that DFID's surveys, as they are currently designed,
achieve this. They focus on whether people are concerned about
poverty, rather than whether they would support increased funding
for development, nor do they attempt to assess the relative importance
people place on development compared to domestic policy areas
such as health and education. We recommend that DFID examines
how it assesses the level of public support for development and
re-designs its surveys to address the weaknesses we have identified.
(Paragraph 128)
23. Corruption in
the use of aid flows is clearly one of the main concerns the UK
public has about development spending. DFID needs to address this
issue head on if it is to succeed in allaying taxpayers' concerns.
We are not convinced that its current approach is achieving this.
We recommend that DFID's Communication Strategy be refocused and
redesigned. The aim should be to create a more effective tool
for persuading the sceptical sectors of society that their money
is not being lost or misspent and that development assistance
brings real benefits to the world's poorest people. (Paragraph
135)
24. Whilst the policies
which DFID pursues should always be those which will have the
most impact on poverty reduction, the Department must make every
effort to present its work in a way that is accessible and meaningful
to the public. This would be assisted by emphasising its desired
outcomes in the promotion of its major programmes rather than
the sums of money to be spent. (Paragraph 139)
25. We endorse the
Secretary of State's view that the UK's development work needs
to gain greater resonance in the public consciousness. We, too,
want to reach a point where the UK's achievements in meeting its
international commitments to developing countries is seen as being
part of our national identity. We agree that increased public
awareness of DFID's work could make a significant contribution
to this and that greater visibility for the Department's activities
is a key component of a more effective public relations strategy.
We would therefore support a change in the Department's name to
better reflect what it does and that it is funded by UK taxpayers.
We are open-minded on what the new title should be but "British
Aid" or "DFID UK" seem like reasonable suggestions.
The Secretary of State indicated that this matter would be included
in DFID's new White Paper to be published later this year—we
look forward to seeing firm proposals for change then. (Paragraph
145)
26. Time spent in
a developing country can clearly be a worthwhile and rewarding
experience for the young people involved. However, DFID must ensure
that it is using its resources for awareness-raising in a way
that achieves the maximum possible impact. It may be that "less
glamorous" work in the UK would be a more efficient use of
money than funding people to travel abroad. We suggest that the
Department uses the opportunity presented by the review of its
development awareness work to reassess its Community Linkage initiative
and reflect upon whether it is the most effective way to achieve
the Department's aims. (Paragraph 150)
27. DFID needs to
build on the work it has done to increase public awareness of
development in schools. We recommend that, as part of the review
of its building support for development programmes, DFID investigate
the possibility of extending its work with young people beyond
schools into youth work, and higher and further education. (Paragraph
153)
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