Draft International Development (Official Development Assistance Target) Bill - International Development Committee Contents

Examination of Witnesses (Question Numbers 1-19)


24 FEBRUARY 2010

  Q1 Chairman: Good morning. It is nice to see you all. You do not really need any introduction for the Committee but for the record I wonder if you could introduce yourselves.

  Ms Evans: I am Alison Evans and I am Director of ODI, the Overseas Development Institute.

  Professor Haddad: Lawrence Haddad, Director of the Institute of Development Studies (IDS), Sussex.

  Mr Maxwell: Simon Maxwell, Senior Research Associate of ODI.

  Q2  Chairman: As I say, it is nice to see you all and thank you for coming in. Obviously we are scrutinising this short draft Bill the Government have put forward. The first and most obvious question is why do we really need to have a piece of legislation to meet a long-term target, although the date is now getting closer, given that those countries, a relatively small number of countries, who have achieved the target have managed to do so without any legislation? Why do we need a Bill like this?

  Ms Evans: Thank you very much for inviting me to present today. Indeed, as you set out, so far progress against 0.7%, which has actually been relatively underwhelming over its 40-year history, more recently has been achieved in five countries without placing the target into legislation. If you look on balance there are probably three quite compelling reasons why this might be a good thing to do, and maybe I can come to some of the caveats against those three potentially good reasons in a moment. The first thing about placing this commitment into law here in the UK is that it underwrites the UK's position as a committed international development actor, and I think that is put beyond question, if you like, by committing this target into law. The second is that we are in a period of considerable financial and economic volatility and that may persist for some time and, given that and given the fact that the ODA[1] spend is one of the largest pots of discretionary money in the government budget, one could argue that placing it into law is a way of protecting that spend against the incursions of what are many competing demands, both national and international. The final compelling reason is that globally the calls on development assistance are likely to continue to increase and every aid pound is chasing multiple priorities, and to ensure that there is a continued focus on ODA as a contribution to that global pot placing it into legislation again puts that beyond question. However, my own view is that it would be irresponsible not to also consider some caveats at this time. Shall I go on and say a few things about three potentially important caveats?

  Q3  Chairman: Actually, we are going to explore that later. Maybe we should hear from your two fellow panellists.

  Professor Haddad: Again, thank you for inviting me here today. A couple of weeks ago IDS hosted some PPCs[2] from our local region, the Brighton region, and we started talking about MDGs[3] and one of them said, "What is an MDG?" What am I trying to say here? I am trying to say that the 0.7% is one of the few international development goals that people actually understand and can relate to beyond the immediate development community, so for the kinds of reasons that Alison outlined I do think on balance there are compelling reasons to put this into legislation. I am a bit more sceptical on the risk side and I think that was reflected in my written testimony to you. I would really like to spend as much time as we have possible talking about how we can manage the downside risks of doing so, but I agree with Alison in terms of the three key messages she has.

  Mr Maxwell: Thank you also for inviting me. My take is that there is a supply side and a demand side aspect to this. On the supply side what we see is that many countries have been extremely willing to make generous pledges at summits like Gleneagles or at financing for development conferences which are then not delivered in practice. The EU is €20 billion short of the pledges made at Gleneagles and looks very unlikely to meet those pledges. The UK has met the pledges and has been a leader in meeting its commitments but there is an ongoing conversation about public expenditure in the future and there are always risks that aid will be subject to cuts. The Bill protects aid and helps us to make the case for aid. On the demand side, which neither of the others has spoken about, predictability is a really important issue for developing countries. It is incredibly difficult to manage the ministry of finance of a country when people are making aid promises which are then not fulfilled. Just to give a couple of examples, in 2006, which is a fairly recent year as far as these data are concerned, Sierra Leone had planned for a certain amount of aid but received only half of it. In Cambodia in the same year the World Bank was only able to deliver 50% of what it had promised. Some of that is to do with the absorptive capacity of the countries but quite a lot is to do with the unpredictability and unreliability of aid pledges. It follows that I am a strong supporter of this idea for both the supply and the demand reasons, but particularly on the demand side the Bill helps developing countries to achieve more predictability in managing their public finances.

  Q4  Chairman: Just on that one, it might be good for making Britain's commitment a little bit more predictable but internationally what pitch is it going to make? Italy, for all practical purposes, is tearing up its aid commitments and it is just not a credible player. Ireland is a credible player but nevertheless in its financial situation has cut back, so is there any real likelihood that the UK adopting such a piece of legislation will have any impact on any other donor?

  Mr Maxwell: It would be nice to think, would it not, that the rolling stone gathered moss as it chased down the hill and that other people joined in? We have seen UK leadership being followed on issues like the commitment to the MDGs, which received political backing from Clare Short when she was Secretary of State, and helping to push the idea through the EU and the UN. As another example, the UK led on budget support, again not just announcing a measure but also campaigning with other countries. I can imagine other countries seeing the value of legislating for 0.7 and wanting to join in.

  Q5  John Battle: At the time of the Make Poverty History campaign one of the themes that came out was to increase the aid commitments internationally, and I think it was not just about the non-delivery but to get the amount in each national budget increased. I was the person who tabled the All-Party EDM[4] to try and achieve 0.7% and to say that it should be a pledge. Tom Clarke in his Bill brought accountability, Hugh Bayley was another, and there was an all-party push. I was involved in the conversations with officials and ministers at DFID and at the Treasury, and they were resisting fiercely, not quite on the grounds, "There is simply not enough money and you are making us give an earmarked commitment", but they asked questions that, as someone committed to the pledge, I am now beginning to take more seriously. They were questions around quality versus quantity, and I kind of wonder if we give a commitment to increase the aid, is there a risk it would displace the quality of aid? I do not just mean the non-delivery of what we have said we will give, but because we have got to get rid of the money—there is a percentage there and we will push it across—is there a risk then that it will undermine some of the good monitoring and evaluation that has been built up and so in a sense the process gets undermined by the need to—if I put it in crude terms—shovel aid out? Exactly that happened with urban development money in Britain and I wonder whether there is not a danger of that here.

  Ms Evans: One of my caveats about placing the target into legislation at this point is that this is clearly an input target. That in itself is no bad thing. It has been a terrific tool for political mobilisation in many ways, although, looking over 40 years, I am not convinced it necessarily has done its job as well as it might, but it has been also used as shorthand somehow for development and I do not think that that in itself is a good thing. Aid quantity, of course, is essential. Without it we would not be able to do the good things that are done with aid, but at the same time, if we allow it to disguise the commitment to aid quality to impact results, then clearly we are into deep water. This particular Government has shown itself to be extremely concerned about aid effectiveness, so in that sense this is not something that they are suggesting in any way would detract from that, but we are talking about a commitment for the long term and I do think that focusing on the input end of this problem rather than on the deliverable end and the results end is potentially looking at the problem the wrong way round.

  Professor Haddad: If you look at the numbers, I think we are about 0.54%, if you look at the recent DAC[5] data that came out last week, so to get from 0.54% to 0.7% in three years is essentially a tripling of the performance of the past 11 years in terms of speed, so it is a very quick ramp-up; it is a three-fold ramp-up in spending, if we take 0.7% seriously, by 2013. I think that will demand a much more beefed-up accountability/impact/quality monitoring mechanism, and I think you cannot have one without the other so I think it is a real risk. I also do not know that the target necessarily makes aid delivery more predictable. It seems to me that in terms of quantity it could add a lot of volatility to the delivery both in terms of the denominator, GNI,[6] but also in terms of this rush to get stuff out and things falling through the cracks.

  Mr Maxwell: Just before you come to that, on Mr Battle's precise issue there are two questions here really, are there not? The first is, does quality suffer if we go to 0.7%? The second is, does quality suffer if we legislate for 0.7%? They are both interesting questions but the first question is more difficult than the second. If we are going to give 0.7% anyway, legislating for it and making sure that there is a safety net under that number does not make any difference to the answer to the first question. If the question is the first one, in other words whether we can usefully and well spend for the foreseeable future a sum of money equivalent to 0.7% of GNI in tackling what we know are the enormous problems of poverty and ill health and lack of education around the world, when we are likely to fail in reaching the MDGs on all those aspects, especially in sub-Saharan Africa, then I think the answer has to be that we know from the evaluation experience and from the record of aid that we can spend the money.

  Q6  John Battle: It would not just be the MDGs though, because in terms of the UK's focus at the moment on low-income countries and the policy to move out of Latin American countries, and we have a programme in India, question mark, in China, question mark, that we are looking at and there are issues around that, when countries reach middle-income status they step out of the programme and the programme moves to focus on the poorest. If you increase the volume and the need to get rid of the money, as it were, would that remove the incentive to ensure that there were proper strategies and focus on poor countries? I would worry about, "We will just stick with that for now because that is a way of using the money".

  Mr Maxwell: It is, I guess, an empirical question as to whether it is possible to spend large amounts of money well. What do we know from the aid effectiveness literature? A lot depends on good policies in the recipient country. Donors must work much better together to align behind the priorities set by the recipient governments. They must harmonise their procedures following the Paris agenda. The worst case scenario you are painting is that we are committed to 0.7% and we have legislated for it and then find that at the margin the quality of aid is declining. If that were to happen and we had rigorous evaluation (which all parties support) which demonstrated the fact, then I think it would be possible to take remedial action.

  Ms Evans: I think the point, as Simon says, is right: we are already in a sense committed cross-party to 0.7%. We might come to the issue of whether we think it is the right number but that perhaps is not entirely for this Committee. Putting it into legislation though, the question in my mind is whether or not we end up having largely a political conversation that is about the target as opposed to about what is being achieved. I have just seen a paper that has been circulated within the Netherlands which is a sort of revisit of their aid strategy in which there is quite a strong criticism of the amount of time that is focused on trying to meet the 0.7% target rather than looking at what it is achieving.

  Q7  Mr Lancaster: I want to ask a question about predictability in a second, but I just want to add to that conversation. I am slightly concerned about the pressures, as we have just outlined, about having to meet this target quickly. I fully support it, but already we are seeing that if you want to find an easy way of spending money then you simply double the replenishment to the African Development Bank or another regional bank, and the Government has already done that for the last two or three years. Going upstairs in committee on the various statutory instruments, we seem to be just increasing the large cheques to multilaterals, so I am concerned about how on this effectiveness point this money can be spent effectively. Do you think already the Government has found in many ways the easy way to spend more money quickly? Is that going to be a big problem for us? I am being slightly cynical here but it is just having seen these very large numbers going through committee over the last couple of years.

  Mr Maxwell: I do not lie awake at night, I have to tell you, worrying about whether or not we can spend what is still a relatively small amount of money globally usefully with very poor people in developing countries. We have seen a very strong commitment from the Prime Minister, for example, to abolish user fees and ensure free delivery of health and education services in the poorest countries. There is a strong commitment to providing ARVs (antiretrovirals) to HIV/AIDS sufferers around the world. There is a big push going on at the moment on infrastructure, with DFID hosting a large conference on joining up Africa. All these things are very expensive and one of the features of the user fee and ARV commitments is that they are about funding recurrent costs rather than capital costs. If you build a road or a power station that is a capital cost, but if you provide drug treatment for somebody for 20 years that is a recurrent cost.

  Professor Haddad: There are certainly lots of things to spend this money on that would not be trivial spends. The World Bank estimates that to halve rates of under-nutrition, which is something I have talked to this Committee about before, would cost about $20 billion. That is just one small part of one sector. There are certainly lots of sensible things to spend money on. The question is can we spend it sensibly.

  Q8  Mr Lancaster: From a predictability point of view, and ignoring the country variations, given that it is tied to GNI and that GNI in itself may vary from year to year, how does that work for predictability, given that there could be this variation anyway?

  Mr Maxwell: Can I comment on that and I am sure the others will want to as well? What do we do at the moment? We fix public expenditure in the Comprehensive Spending Review as a cash amount (subject to inflation) for a three-year period going forward. If the Treasury were to have a 0.7% target in mind we would get a number which would correspond to 0.7% of their estimates of GNI going forward. If a stronger commitment were made, and 0.7 were required by law, then there could be variations, but they would be relatively small. GNI goes up by a maximum of 2% or 3%, and even in the last recession, the worst for 60 years or a generation or for ever, GNP went down by about 5%. So we are not talking about 30% or 50% variability here; we are talking about a relatively small variation. One of the suggestions in the note I did for the Committee was whether or not a three-year rolling average would enable those variations to be smoothed out. Some people will argue that there may be other sources of volatility in the amount of money which actually reaches countries because once you start with a global aid budget you then start knocking off money for NGOs and humanitarian aid and so on. My feeling is that those claims on the aid budget will exist however it is managed and so this proposed legislation does not make the aid budget more volatile. The great advantage of countries knowing that if there is a sharp dip in tax revenues they are not going to have aid slashed is really important. Predictability is an issue in the Paris agenda and overall the figure is that even as late as 2007 only 46% of aid to developing countries was predictable. It is incredibly difficult to manage a ministry of finance if you do not know how much money you are going to have the following year. I have talked to officials in developing countries who have said, "Well, yes, we have got all this money promised for education but we do not risk spending it because we cannot hire teachers if we cannot guarantee that we are going to be able to pay those teachers three or five years from now. It is too much of a risk for our public finances".

  Professor Haddad: I think this is an empirical question and I would urge the Committee to look in other areas outside of development where governments have enshrined certain funding targets into legislation and had a look before and after at whether it has increased predictability of flows or not. I do not think we have an example from another country, do we, on aid?

  Q9  John Battle: Which other departments in the UK, may I ask, are you thinking of?

  Professor Haddad: I do not know what they are.

  Q10  John Battle: DWP[7] is the only one I can think of.

  Professor Haddad: It might be a good thing to do to check that.

  Ms Evans: I do not disagree at all that at the most macro level committing 0.7% to legislation provides a degree of predictability, and I rarely disagree with Simon but I think when you come down a level predictability at country level is about the aid relationship. It is about the nature of the agreement and that agreement has relatively little to do with whether or not 0.7% is in legislation.

  Q11  Andrew Stunell: You have come to exactly the point I was going to raise. If I am sitting in the ministry of finance in Nepal, a country which we visited recently, do you think I will be rubbing my hands at the thought of this legislation going through the UK Parliament in terms of increasing the predictability of what I get?

  Ms Evans: My own view is probably not, frankly.

  Professor Haddad: I think you would be a bit more reassured that you would have a basis for discussing predictability with your DFID counterpart, but there is no guarantee.

  Q12  Andrew Stunell: It seems to me as an amateur here that it is going to probably depend more on the relative value of the Indian rupee and the British pound than on the growth of the UK economy or alternatively the rigidity with which the 0.7% ODA targets are implemented in London.

  Mr Maxwell: Exchange rates, of course, are an issue, but if I were sitting in the ministry of finance in Nepal I would remember with a certain regret the day that I hung the streamers from the ceiling to celebrate the Gleneagles commitments and sat there planning how I would spend the money on health and education services for my people, I would look at the books and would realise how much of that aid had not appeared. I would, of course, always be glad to see the British ambassador to Nepal because Britain has met its pledges, but I would look at Britain and would say, "It is great that all the parties have committed to 0.7%, but just look at the size of the public expenditure crisis that the UK is alleged to be facing. Are they really sure they can continue to deliver that level of aid? Shall I hire that extra teacher on the basis that I have promises from the UK or should I be cautious about it?" There is a risk there, I think, so I would say that knowing that it is in legislation would be a reassurance to me.

  Professor Haddad: It is not clear to me what the externality effects are going to be. Are other countries going to start reallocating or not? It is absolutely not clear to me. For countries where UK aid is very important that is probably a good thing but for countries where UK aid is not that important will other countries say, "Great. The UK is committing to legislation. Now we can do less"?

  Ms Evans: I think if the commitment to legislation means that the UK is able to enter into more predictable agreements at country level that are of a five- or ten-year nature because the overall envelope is more certain then that is a good thing, but it is how that agreement is brokered and honoured at country level that ultimately matters. Whether or not it is in legislation might not influence that, the binding nature of that agreement.

  Professor Haddad: But not just with the recipient country; across the donors in that country as well.

  Q13  Andrew Stunell: Just looking at the point you have made, what do you think the impact of this will be on the psychology of the civil servants within DFID? Will it allow them to feel more confident about committing right up to the hilt to Nepal, for instance, or will it not? Do you think the existence of this legislation will have an impact on the administration of aid money in the development of country programmes, or will it make no difference?

  Ms Evans: I think we can only hypothesise that that would be a good outcome in the sense of if it provided a clearer benchmark against which commitments could be made but, as I said, I think the process for allocating resources to countries, of course, has a number of dimensions to it, not just the size of the overall envelope. Therefore, the impact of committing this 0.7% to legislation may in the end be relatively modest compared to other factors which weigh very large.

  Mr Maxwell: You have put your finger on something very important, which is the approximate time horizon of planning in DFID. In the old days it was very difficult to go beyond annual programming with many aid agencies. We now have a three-year rolling spending framework which gives us at least three years' predictability, but we all know that development is a 20- or 50-year project in which you need long-term predictability of funding. We are at a very particular moment in British history where all the major parties have made public and high profile commitments to maintain the 0.7% aid budget. I think we are very fortunate. I would be surprised if that degree of consensus were sustainable in the very long term. We should expect the possibility that somebody may defect from the collective agreement.

  Chairman: Perhaps we can move on to the definition of aid because that obviously is important.

  Q14  Mr Evans: The great temptation clearly is to stretch the definition, is it not?

  Mr Maxwell: Yes, absolutely.

  Q15  Mr Evans: What concerns have you got about that?

  Mr Maxwell: My main worries at the moment are about climate finance, internationally rather than in the UK, and about security issues. On climate, we have a very strong policy position from the present Government, and I do not know whether it has been echoed by the Opposition parties, that no more than 10% of the aid budget should be used for climate funding. There are, of course, many ambiguities in what you mean by climate funding. Is this building a dyke to protect against floods, for example, or is it part of an irrigation system? What is climate and what is not is an issue, but as long as we hang on to the policy as expressed, we are more or less safe in terms of protecting the other aspects of development expenditure from predation by people who want to spend money on climate change. More generally we are protected by the International Development Act which specifies that aid must be used for poverty reduction. That has never been tested in the courts and there is a very interesting question about what we mean by poverty reduction. It would be interesting one day for an NGO to find a Pergau Dam type example and test the meaning of poverty reduction. To take a very crude example, is invading Afghanistan a contribution to poverty reduction in Afghanistan? If that were the case almost the entire military budget in Afghanistan could be charged to aid? In terms of security, first of all I think it is legitimate for some aid to be spent, especially in fragile states, on the kinds of things that contribute to security. That much is clearly stated in last year's DFID White Paper. However, we are bound there by the rules of the Development Assistance Committee of the OECD on what can be counted as aid and what cannot. I attached to my evidence—I do not know whether it has been circulated—their little leaflet on what counts as aid. You can charge police training but you cannot charge the police. You can charge the marginal cost of using the military for disaster relief but you cannot charge the core military costs. There is a debate in Paris amongst the members of the Development Assistance Committee about whether or not the definition should be enlarged and quite a lot of governments I think would like to soften the definition of aid at the edges, in order to put in there some things that otherwise would not be.

  Q16  Mr Evans: In terms of these other countries that have 0.7%, has an analysis been done as to how imaginative they have been in the spending of that money?

  Mr Maxwell: They are all bound by the DAC rules. The DAC rules are permissive in some ways that the UK has not yet taken advantage of. In particular first-year refugee costs can be charged against the aid budget. That costs £2 billion a year which is quite a large chunk of the total aid volume. The UK so far has not charged first-year refugee costs against the aid budget but there is gossip, and I cannot put it more strongly than that, that they are looking at whether or not they should, given the public expenditure situation. It would be wonderful if you could ask.

  Q17  Chairman: So that would effectively enable them to achieve 0.7% in one bound?

  Mr Maxwell: Not one bound, but it would be one small step.

  Q18  Chairman: £2 billion—that would get close to it, would it not?

  Mr Maxwell: I suppose it would. I do not know what the number is for the UK—£500 million?

  Q19  Mr Evans: Alison, have you got any reservations about this?

  Ms Evans: I very much agree with Simon that there are protective limits in place here, and I think the UK Government has been extremely responsible in the way it has managed the ODA definition, as it were, and is a big voice for trying to hold the line on the ODA definition, but we are in a changing world, there is no question about it, and I think the conversation about whether the ODA definition will stay in its current form is going to happen. It has started. It will not perhaps happen in the next few years seriously but it definitely will be on the table at some point.

1   Official Development Assistance Back

2   Prospective parliamentary candidates Back

3   Millennium Development Goals Back

4   Early Day Motion Back

5   Development Assistance Committee of the OECD Back

6   Gross National Income Back

7   Department for Work and Pensions Back

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