The UK’s aid cuts: where will they fall? And how big the implications for global aid flows?
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
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)
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
Scenarios for aid cuts and what this means for global aid
While we may not have long to wait to find out, there are signs as to where the new UK priorities will be. In a letter to the Chair of the UK parliament’s International Development Committee, the current Foreign Secretary, Dominic Raab, set out seven “global challenges” that the new FCDO will prioritise (see letter below):
►Climate Change and biodiversity
► COVID and global health security
► Girls’ education
► Science, research, technology
► Open societies and conflict resolution
► Humanitarian preparedness and response
► Trade and economic development
In addition, the letter also indicates geographic preference for sub-Saharan Africa (SSA) and the ‘Indo-Pacific region’ (a quick check on wikipedia doesn’t make particularly clear exactly which countries count in this latter region, or if the UK is aiming for a large redistribution to small island states such as Vanuatu etc.); however this can be possibly taken to also mean a relative de-prioritisation in aid spend in the Middle East and South Asia, which currently take up 21 percent each of UK bilateral aid spend (compared to 47 percent in SSA).
Using this source, we can estimate some basic scenarios. Firstly, we can imagine one (relatively ‘sunny’) scenario in which bilateral cuts were limited, (although this would be due to cuts to multilateral spending, according to ICAI 89 percent of 2020 cuts were made by delaying multilateral transfers rather than to bilateral spending). A second scenario, is one in which geographical segmentation is seriously used as per the stated SSA/Indo-Pacific focus. In a third scenario, bilateral aid cuts are larger, taking seriously the line in the letter on maintaining multilateral leadership. Given Dominic Raab’s statements, the two latter scenarios are more likely, meaning a likely 40–60 percentage cut to bilateral aid. Table 2 below sets out these three simplified scenarios, both in the scale of the cut for UK’s highest 26 country contributions, as well as what that means for each country in terms of the size of cut to the overall aid they receive. Scenario 3 here represents £3.4 billion of cuts, meaning additional cuts would be required for other countries (cumulatively the countries listed amount to about 85 percent of UK aid spend) and cuts to other areas of multilateral spend.
Table 2: Three scenarios for aid cuts (FY2021 as compared to 2019 spend) and what they would mean for the countries the UK has provided the most aid to including as a proportion of global aid to these countries
According to this analysis, in Scenario 2, ten countries would see UK aid budget cuts of around £100 million or higher. In Scenario 3, 15 countries would, of which Pakistan, Ethiopia, Afghanistan, Nigeria, and Bangladesh would all see cuts to UK aid of over £200 million (in FY2021 as compared to 2019).
The most severe cuts in terms of the scale of UK contribution as a proportion of global aid flows here (with the cuts leading to at least a ten percent cut in global aid flows from this cut alone) would be to Zimbabwe, Somalia, Nigeria, Pakistan, Yemen and Syria (the latter two countries see most aid flow to helping refugees or other humanitarian and food aid).
The most severe cuts in terms of the country’s relative aid dependence as measured by aid as a proportion of per capita income would be in Somalia (the UK cut in Scenario 3 above would lead to a 10% reduction in their overall global aid received, but aid itself makes up nearly a third of estimated national income in the country), and South Sudan (10% reduction in global aid received, and aid in total worth 40% of national income). These countries would therefore, all else equal, feel a larger relative impact from the potential cuts. This effect would also be severe for Malawi, Afghanistan and Sierra Leone among others.
Sector scenarios
The same analysis can be done looking at UK sector spend. Three scenarios are set out here, one (sunny) scenario with a 20% cut across all sectors of UK aid spend. The second scenario assumes a 30% cut for the protected sectors as set out in Dominic Raab’s letter (education, health, governance and security, climate change, humanitarian aid) and a 50% cut for unprotected sectors (the rest). The third (very pessimistic) scenario assumes a 40% cut for protected sectors and a 60% for unprotected spend.
It is likely the real outcome of the coming cuts will end up close to scenario 2 or 3 here. Scenario 2 represents a £5.6 billion cut from the 2019 aid budget, in line with some estimates. The Scenario 3 would represent a total halving of the 2019 aid budget by 2021–22, which though extreme, may be possible.
The final columns for each scenario in Table 3 below show how much this cut would reduce total global aid transfers for each sector. Due to the UK’s oversized representation in some sectors, even with relative protection the overall cut to global aid for many sectors is likely to be large, up to 4.8–6.3 percent for health for example, a cut of £600–£800 million. Education spend would likely reduce by £275-£375 million, while humanitarian spend reduce by £800-£1000 million.
Table 3: Three scenarios for UK aid cuts (FY2021 as compared to 2019 spend) and the sector impact they would imply including to overall global aid to these sectors
This basic analysis shows that the UK’s sudden decision to withdraw from its aid superpower / global leadership role, whether or not you agree with that, may have a very disruptive effect on a range of areas of international engagement and assistance including large areas of basic service provision in some of the world’s poorest and most fragile countries. The volatility of spend is also highly likely to be correlated with other volatility (to countries’ GDP, exports, foreign direct investment etc.) and can only exacerbate the current crises.
Where’s the strategy?
In the short term, as Ian Mitchell of the Center for Global Development has warned, the speed of cuts create “major value-for-money risks”, not least in the post-COVID world. This includes potential exit costs from closed programmes (compensation to contracting firms for example), which should not count as overseas development aid and may therefore mean additional cuts to sector spending (‘on the ground’) are required. The vital work in producing and distributing vaccines for COVID may see important diversions of expenditure, but again, without a protected budget, this may imply even further cuts elsewhere.
The ultimate question (beyond the potential legal challenge to these cuts, which presumably will have a low chance of success) is what the UK’s strategy in the ‘post-Brexit’ world will be. The UK’s Integrated Review of Security, Defence, Development and Foreign Policy by the Ministry of Defence, is due to set out such a strategy, which may determine the likely future scenarios for UK aid and engagement in international development. The degree to which aid will become a quid pro quo for the island’s pursuit of new or improved trade deals for example, or how it will fit with other geopolitical positioning. The strategic review is long-awaited and likely to be imminent, but regardless of the criteria used, there is no doubt that this is a retreat for the UK from its ambitious engagement with so many countries, so many sectors, and such a range of programming, bilaterally and multilaterally, which DFID forged.
Watch this space.
Annex 1: Note on data
In order to find internationally comparable data, two main sources are used — World Bank World Development Indicators principally for aid received by each country (from DAC countries for bilateral flow, from UN organisations, World Bank IDA and regional development banks), and OECD aid data information for sources of aid and how it is broken down by sector; deviations from the UK self-reported statistics are small and likely due to exchange rates used as well as some small areas of spending that are missing from the OECD figures). If you are interested in seeing this data or finding out more, get in touch.
Annex 2: Brief history of DFID
1997
- Labour government comes to power under Prime Minister Tony Blair
- Department for International Development (DFID) founded, Clare Short as its first Secretary of State (SoS)
2005
- DFID decides 90% of bilateral aid to go to Low Income Countries
2007
- Gordon Brown becomes Prime Minister
2008
- DFID Middle Income Countries strategy expires, is not replaced
2010
- The Conservative-Liberal Democrat Coalition comes to power, David Cameron as Prime Minister
- Andrew Mitchell SoS for DFID
- Strategic Defence and Security Review published
2011
- Bilateral aid review — DFID to focus on 27 priority countries
2012
- Justine Greening SoS for DFID
2013
- UK meets UN’s 0.7% GNI target on aid
2015
- 0.7% aid target becomes legally binding
- New UK Aid Strategy, committing to working ‘beyond aid’
2016
- New funding channels for ODA announced, shift to non-DFID spend
- Brexit referendum
- Theresa May becomes Prime Minister
- Priti Patel SoS for DFID
2017
- Penny Mordaunt SoS for DFID
2019
- Boris Johnson becomes Prime Minister
2020
- COVID-19 global pandemic
- FCO and DFID merger announced in June, implemented by September
- COVID consequences include loss in GNI and resulting cut to value of aid budget of £2.9 billion as announced in July
- Further aid budget cut from 0.7% to 0.5% of GNI (to be tested legally), announced in November, implying at least £5 billion of cuts.
- Brexit transition period comes to an end
2021
- Integrated Review of Security, Defence, Development and Foreign Policy to be published
- Aid budget cut to be tested legally and in parliament
