International Development Financing: Time to Think Afresh

In a recent Financial Times article titled ‘The financial architecture for global aid needs an urgent overhaul’, Oxfam GB’s Director made an impassioned plea for revamping the international financing system that has for decades fuelled the international development agenda. Also referenced in the article are the massive unmet humanitarian needs worldwide, the punishing effects of COVID-19 responses and inflation on the world’s poor, reductions in overseas development aid budgets, climate-related droughts and disasters, as well as perennial debates over charity versus self-interest for wealthy countries.

Among the ideas suggested for an ‘overhaul’ are increased private sector financing, windfall and ‘robin hood’ taxes, and the Bridgetown Initiative. Proposed by the Government of Barbados, the latter would provide emergency liquidity through international financial institutions to tackle the looming debt crisis faced by many developing countries, allowing easier credit and debt restructuring; expand multilateral lending to governments by around $1 trillion; and build a new mechanism to assist countries with reconstruction after climate-related disasters.

The emphasis of the Bridgetown proposal on debt points to some key underlying issues. The developing world’s return to a debt crisis after decades of debt relief, painful economic reforms and sizeable inflows of development assistance should give us all pause for thought when we think about financing gaps. Now is certainly a time for bold proposals, for the reasons set out above. And it is hard to argue against additional financing in the face of pressing needs, blossoming debt and dwindling levels of official development assistance (ODA). But calls for financing only scratch the surface of a set of knotty and evolving problems.

A first issue is the appropriateness of the international development agenda, which is perhaps best understood through the UN-led Sustainable Development Goals (SDGs). The international development community of donors, multilateral and non-governmental agencies is demonstrably failing to progress towards these 17 goals and 169 targets that were set in 2016. Despite a considerable investment of time, energy and money in these and the prior Millennium Development Goals, poverty and inequality have proved stubborn problems for the developed and developing world. By some measures, global poverty levels have not shifted downwards – except in China – since the early 1990s. Past claims that an end to extreme poverty was in sight have certainly begun to unravel. By the World Bank’s standard measure ($1.90 per day), extreme poverty fell globally from 1.895 billion in 1990 to 736 million in 2015 – from about 36% to 10% of the world’s population. But a recent report by the UN’s own Special Rapporteur on Extreme Poverty and Human Rights concluded that by a more realistic measure ($5.50 a day), the number of extreme poor remained much the same over that period, declining only from 3.5 to 3.4 billion. Although many working towards this agenda are skilled and well-motivated, the SDGs characterise the unobtainable top-down targets and an almost ineffable global bureaucracy of ‘official’ international development. Top-down solutions to global poverty can play a role, but too often produce white elephant projects. They also provide an unappealing stage for governmental and celebrity virtue-signalling and can mask very real institutional interests. Amid the complexity and opacity that flow from this, the real needs and the voice of the poor are often lost.

A second issue is the shifting global political and economic context since the 2008 financial crash, which has been characterised by economic contraction and a growth in populism and nationalism in the West. As these trends have accelerated, geopolitical competition and moves towards de-globalisation have become apparent. Volatility and uncertainty look set to continue. Amid a predicted worldwide recession, with supply-driven inflation and economic difficulties for China, the direction of global politics is hard to read. But contestation among world powers looks set to continue amid a drift towards multipolarity.

It is in this broader context that patterns of international poverty and debt have proved difficult to shift. And it is this context that largely accounts for the contractions in overseas aid budgets and available development finance. The UK, for example, dramatically reduced its ODA allocations from 0.7% to 0.5% of gross national income in 2020, citing the costs arising from its COVID-19 responses. That move represented a dramatic reversal of decades-long government policy. It was a blow to many aid beneficiaries, and RUSI’s emerging research findings suggest it has damaged the UK’s reputation abroad. It proved controversial at home, but had a clear political logic. Domestically, it appealed to sections of the Tory Party and the public who felt charity began and perhaps even ended ‘at home’. But in an age of growing international competition, it also opened the door to arguments around linking aid and foreign policy in the ‘national interest’.

The bitter sparring over aid allocations is illustrative: it reminds us that the challenge of global poverty is ultimately not financial or technical, but political. And at a time of darkening and divisive politics, bold reforms and fresh thinking are required. To be fair, there has been a reformist tone to several of the recent initiatives in and around international development, some related to aid and financing and some that go beyond. For example, the UK government’s recent international development strategy emphasised alternative financing mechanisms, new economic partnership agreements and trade. The Biden administration recently released a new Africa Strategy, with a focus not just on development and prosperity issues but also on democracy. More notable than this was the administration championing a permanent African seat on the UN Security Council and G20 representation.

The content of these strategies serves to illustrate a point: enhanced international development financing can play a part in a future international development agenda. But the extent of the challenge and the inherited historical track record of ‘big development’ suggests that more and better financing will not deliver sustainable poverty reduction any more than previous financing mechanisms did.

On the economic front, more, better-quality and predictable financing would need to be accompanied at the very least by a pro-poor trade and investment agenda that tackles the structures which reproduce debt and inequality. Then there are questions of corruption at home and abroad, and the extractive role that large corporations and finance capital play, often with elite approval. Better political leadership would be needed at home and in many developing countries to even chip away at such problems. Last but not least is the question of whether tensions arising from a shrinking global economy, economic populism and emerging multipolarity can be squared by international development as we now conceive of it. This in turn forces us to look at development and financing with a more political lens, and to consider how the issue intersects with domestic politics and geopolitics, economics and grand strategy.

The above may be something of a wish-list. But in this erratic global context, a fresh and vigorous debate is needed not just on financing (the ‘how’) but on the underlying ‘what’ and ‘why’ questions. Yet if calls for financial reform act as an opening salvo for a wider debate then so be it. And perhaps it is fitting – if ironic – for the UK, as a recovering ‘development superpower’, to champion such discussions. Provided the development sector is willing to reflect on its own achievements and limitations, UK institutions from academia to civil society and government have just enough legitimacy remaining to help open a global discussion on the topic.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.

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