The detailed breakdown of aid spending published in October 2011, following the government’s budget announcement, shows for the first time what this decision will mean to the Netherlands’ aid spending over the next five years.  This document reveals that The Netherlands’ Official Development Assistance (ODA) is set to fall from almost €4.9 billion in 2010 to just over €4.4 billion in 2012, a cut of over 9%.

However, the previous government had planned for year-on-year increases in the ODA budget over the period 2011-2015 so, if the new governments’ plans are compared to those of the previous government, the differences are even larger.

In fact, taking all of the estimates of ODA spending up to 2015, the current Netherlands’ government anticipates spending over €3.8 billion less on international aid than the previous administration had planned for over the same period.
Among the nine individual policy themes of Netherlands’ development cooperation there are significant variations in the way these cuts are implemented across these themes. As shown in the table below, three of the policy themes actually show significant increases over the period 2010-2012 (detailed estimates by theme are not available beyond 2012) whilst six of the nine themes suffer cuts to their budgetary allocations over this period.

Table 1: Netherlands’ ODA spending by policy theme over the period 2010-2012

The increase in Theme 3 is due to an anticipated €65million increase in Netherlands’ ODA contributions via the EU budget between 2010 and 2012.
The increase in spending on Theme 6 is largely due to a €50million increase in spending on water and sanitation, one of the new government’s stated development priorities.

The increase in spending on Theme 7 is almost entirely due to an anticipated €47million (19%) increase in the funding of refugees in The Netherlands. However it is not clear what is the basis for this increase in refugee costs.
By far the largest share of the cuts in ODA over the period 2010-2012 is borne by programmes relating to human and social development (Theme 5). The cuts in this theme mostly relate to three areas:

• The Netherlands’ ODA spending on education is set to fall by over 45%, or €194 million, from €430 million to €236 million
• Spending on civil society in developing countries is set to fall by 20%, or €117 million, from €591 million to €474 million
• Spending on HIV/AIDS is set to fall by 22%, or €91 million, from €426 million to €335 million

Although these cuts still leave The Netherlands as one of the few countries who are achieving a level of aid spending of 0.7% of GNP, these plans plainly represent a significant loss of resources to developing nations. It is especially unfortunate that, with the deadline for the Millennium Development Goals fast approaching, the steepest cuts have been made in the budget for human development programmes, especially education.

Sources:

2012 Homogene Groep Internationale Samenwerking (HGIS) – full document (in Dutch) https://zoek.officielebekendmakingen.nl/kst-33002-2.pdf

2012 HGIS factsheet (in English) https://www.minbuza.nl/binaries/content/assets/minbuza/en/import/en/the_ministry/hgis-factsheet-2012-en.pdf/hgis-factsheet-2012-en.pdf/hippogallery%3Aasset

Such cuts in the foreign assistance budget are in contrast to the President’s budget request, published earlier in the year, which contained provisions for a modest increase in bilateral assistance coupled with a significant scaling up of multilateral aid. Budget4Change analysed spending in four areas of the State and Foreign Appropriations Bill (Whereas the full 302b allocation tables had not been published at the time of writing the data were drawn from the text of the final bill) which, between them, account for most of the United States reported ODA.  These areas are: Bilateral Assistance, Multilateral Assistance, USAID Operational Expenditure and Export & Investment Assistance.  The President’s request suggested a combined 11% increase in the funding of these parts of the budget, compared to FY2011.  However, the eventual budget agreement delivers cuts to these four areas of some 19% overall, or almost $4.8billion.

The table above shows the scale of the cuts for each of the four budget categories together with the amounts put forward in the President’s request.

As can be seen, the budget for USAID’s operational expenditure has been cut back by around one-third.  One immediate effect of the cuts is to halt new hiring at USAID and a stop to the expansion of overseas facilities.

Budget Category	FY2011 budget	President's request	FY2012 budget	Proposed budget cut in FY2012
Bilateral assistance	21,200	22,500	17,700	3,500
Multilateral assistance	2,529	3,900	1,800	729
USAID operational expenditure	1,528	1,745	1,040	488
Export and investment assistance	333	350	266	67
TOTAL	25,590	28,495	20,806	4,784

Table 1: Cuts in US foreign assistance planned in FY2012 by budget category

Almost all the underlying bilateral assistance programs have had their budgets reduced with major cuts to the Global Health program (-14%), the Migration and Refugee Assistance program (-12%) and the Millennium Challenge Corporation (-19%).

However, the biggest single cut is to the bilateral Economic Support Funds (ESF).  The aim of these funds is to “support U. S. foreign policy objectives by providing economic assistance to allies and countries in transition to democracy, supporting Middle East Pease negotiations, and financing economic stabilization programs” (economic stabilization programs).  The amount of money budgeted for such funds was $6.4billion in 2010 and $7.2billion in 2011, but is set to fall to $4.1billion in 2012 representing a cut of over $3billion or 43%.

Similarly, funding for almost all multilateral bodies is set to fall in 2012, notably the Global Environment Facility (-53%), the Asian Development Fund & Asian Development Bank (-31% combined) and the African Development Fund (-27%).

The IAE is the principal fiscal source for Canadian ODA and this therefore means that ODA from Canada will also remain frozen at current levels. As the 2010 budget assumed 8% year-on-year increases in the IAE, the total amount of ODA cut from Canadian budget projections could be as high as $6.7billion if the freeze in ODA spending continues to 2015.

Assuming Canada’s economy continues to grow at the currently projected rate, ODA as a percentage of Canadian GDP will fall from its current level of 0.33% to 0.27% in 2015 if the freeze in the IAE continues until then.

See also the analysis published by the Canadian Council for International Co-operation (CCIC)

As part of this recovery plan 35million Euros will be cut from the ODA element of the budget of the Department of Foreign Affairs. This represents a reduction of approximately 5% in Ireland’s ODA. This will also probably reduce Ireland’s ODA as a percentage of GNI to around 0.51%-0.52%, down from 0.59% in 2008 and 0.54% in 2009.

The reduction in ODA accounts for a significant majority of the spending cuts in the foreign affairs budget (€35million out of total full-year savings of €37million in 2007). No detailed plans for ODA levels have been published for the years 2012-2014, but the overall savings from the foreign affairs budget over these three years are predicted to total €150million. Thus it would seem reasonable to assume that ODA could fall even further, perhaps being €40-€50million lower in these three years compared to 2010.

The Comprehensive spending Review (CSR) announced on the 20^th October 2010 solidified the UK Government’s promises to protect the aid budget from the cuts inflicted on other government departments.  The announcement also set out the Government’s plans to achieve the goal of increasing the UK’s ODA to 0.7% of GDP by 2013.

Although the DFID budget is protected, and indeed is set to substantially increase in the coming years, it is worth remembering that DFID has recently accounted for 84%-88% of the UK’s ODA with the rest coming from other government departments and government-funded agencies.  For example, the Foreign and Commonwealth Office (FCO), which is set to have its budget cut by a quarter, contributed over $200million to the UK’s total ODA in 2008.

In light of this, it is well worth noting the fact that the CSR document highlights a commitment to protect or increase, not only DFID’s budget, but also the ODA element of the FCO budget and that of the Department of Energy and Climate Change (DECC).

The fact that DFID’s budget is increasing whilst other departmental budgets are being cut inevitably means that DFID will, in the short term at least, have to shoulder an even greater proportion of the UK’s total ODA.  The figures in the CSR appear to bear this out, at least until 2012.  If DFID’s proposed budget is converted to a calendar year basis, to allow comparison with the projected ODA figures, it is clear that DFID’s share of ODA is set to rise over the next two years, probably peaking at around 95% in 2012.

ODA increases in 2013

After 2012, the situation regarding DFID’s share of UK ODA looks set to change once again with the proportion of the UK’s ODA provided by DFID reducing to around 90%.

This coincides with a large increase in DFID’s budget, planned for the 2013-14 fiscal year, which will be necessary if the Government’s stated aim of contributing ODA equivalent to 0.7% of GDP by 2013 is to be achieved.  The CSR shows that ODA will rise by 32% in 2013 in order to meet this commitment.  However DFID’s budget in 2013-14 is set to increase by 28% which, although substantial, falls short of the 32% increase in overall ODA needed to meet the 0.7% commitment.  The clear implication is that, after 2012, other government departments and agencies besides DFID will need to make significant increases in the amount they contribute to ODA.  The question of how this will be achieved, given that the CSR outlines a programme of cuts that extends into the 2014-15 fiscal year, remains unanswered as yet.

Other potential causes for concern stem from the sheer scale of the ODA increase planned for 2013.  The need to find almost £3bn of increases in ODA between 2012 and 2013 may lead to a temptation on the part of the UK Government to boost the ODA figures by including elements such as imputed student costs or first year refugee costs in their ODA calculations.  On the other hand if the UK ‘engineers’ some large ODA disbursements in 2013 (for example by backloading multilateral replenishment commitments – such as IDA – and choosing that moment to make large payments) in order to achieve the 0.7% goal in that year, this would raise questions about how this level of aid could be sustained in the longer run.

Departmental Highlights

As previously noted, DFID and two other government departments (FCO & DECC) are mentioned in connection with ODA levels in the main CSR document.  Below is a brief summary of the key points relating to ODA from each of these departments:

Department for International Development (DFID)

• DFID’s budget is to grow by £3.7billion, or 47% by 2014-15, compared with current financial year
• A 28% increase in budget is planned for 2013-14 alone
• A new, independent Commission on Aid Impact is to ensure value for money in aid spending
• Development policy to focus on booting economic growth and wealth creation
• Running costs will be reduced to 2% of total spending by 2015
• Commitment to spend up to £500 million per year on malaria by 2014-15
• The UK will contribute £2.9billion to International Climate Finance over the period of the review, this will be funded jointly by DFID, DECC and DEFRA (It remains unclear whether this climate financing is ‘additional’, and how much of this will count as ODA. Gordon Brown previously committed to restrict the UK’s aid budget contributions to climate financing to no more than 10 percent – will the current government continue with this?)
• 30% of ODA will be used to support fragile and conflict-affected states by 2014-15. The Strategic Defence and Security Review records current levels of 22%. (it is worth noting that, in 2008, 35% of UK bilateral ODA already went to countries on the list of fragile states)
• DFID will close its programmes in China and Russia

Foreign and Commonwealth Office

• The overall budget of the FCO reduces by approximately one-quarter in real terms
• However, the CSR documentation states that the review “provides for an increase in the FCO’s ODA spending to help meet the Government’s commitment to dedicate 0.7% of GNI to ODA.” (It is not clear whether this would include reclassifying some existing activities as ODA rather than diverting money away from other activities).
• A ‘separate settlement’ has been reached for the Conflict Pool, a fund that exists to help prevent conflict and support post-conflict stabilisation, which is funded jointly by DFID, the FCO and the MoD.  A percentage of contributions to this fund are counted as ODA.  No details were made available of this settlement, but it is possible that the FCO’s contribution to this fund will be lower in the future, with more funding provided by DFID.
• The British Council, responsible for a large part of the FCO’s ODA, will “continue to make a major contribution to the UK’s international presence”.

Department of Energy and Climate Change

• Spending on ODA by the DECC “is protected” according to the CSR documentation
• As noted above, DECC will contribute toward the £2.9billion that the UK has committed to spend on International Climate Finance

Resources

The 2010 Comprehensive Spending Review can be downloaded here here.

The 2010 Strategic Defence and Security Review can be downloaded here

Development Initiatives, through the Budget4Change programme, had initially feared that the Foreign Office budget would be cut in 2010-11. This could possibly have been bad news for aid volumes, as more than 5% of the Foreign Office budget is spent on ODA activities. Instead, the Foreign Office budget, initially forecast to drop from £2.3 billion to £1.8 billion by 2010-11, has grown slightly, and is now estimated at £2.4 billion for the 2010-11 year.

Elsewhere, the text accompanying the budget re-iterates the government’s commitment to the 2013 ODA targets and the DFID budget for 2010-11 remains the same as initially estimated, at £7.8 billion. The outturn for DFID in 2009-10 is now predicted to be £6.7 billion, just £0.1 billion lower than stated in the December PBR.

Although the majority of the UK’s ODA comes from DFID’s departmental budget, aid from the budgets of other government departments remains an important issue. Whilst the DFID budget is set to increase by almost 15% in 2010-11, the 2007 Comprehensive Spending Review (CSR) stated that UK ODA would increase from £7,477million in 2009-10 to £9,140million in 2010-11, an increase of over 22%. This therefore means that departments & agencies other than DFID will be expected to shoulder a larger portion of UK ODA in 2010-11 than in 2009-10.