The Future of Aid: An Horizon Scan Homi Kharas The Brookings - - PowerPoint PPT Presentation

The Future of Aid: An Horizon Scan

Homi Kharas The Brookings Institution June 18, 2012

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A Changing Development Landscape

• The World is Changing

» Uncertainty and crises » Convergence » Fragility » Inequality » Africa

• Development Needs are Shifting

» Financing the Global Poverty Gap » Funding Infrastructure » Targeting Countries

• So is the Environment for Bilateral Donors

» Emerging Economy Donors » Private Philanthropy

• So who will need to change?

» Aid Agency Relevance

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The Changing World: Greater Volatility in Capital Flows

• 50

50 100 150 200 250 300 350 400 1990 1995 2000 2005 2010

Capital flows, net (US dollar, billions)

Developing Asia Latin America and the Caribbean Sub-Saharan Africa

Source: IMF WEO Database, April 2012

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The Changing World: Higher Food and Energy Price Volatility

50 100 150 200 250 300 2005=100 Food Price Index Fuel (Energy) Index Source: IMF Primary Commodity Prices Notes: Food Price Index, includes Cereal, Vegetable Oils, Meat, Seafood, Sugar, Bananas, and Oranges Price Indices; Fuel (Energy) Index, includes Crude oil (petroleum), Natural Gas, and Coal Price Indices

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The Changing World: Convergence towards Middle Income Countries

Memo: Developing country GDP growth 2010-2016: 7.72% Developing country GDP, current prices, 2011: $25.1 tn. Developing country GDP 2025: $71 tn.

Income Classification 1990 2010 2025 Low Income Number of countries 51 35 25 Total population (millions) 3074 793 712 GDP per capita (USD constant 2000) 362 300 299 Number of poor, millions (under 2 dollars a day) 2079 449 315 Middle Income Number of countries 86 110 99 Total population (millions) 1083 4976 3905 GDP per capita (USD constant 2000) 2934 2008 2121 Number of poor, millions (under 2 dollars a day) 162 672 237

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The Changing World: No Poverty Reduction in Fragile States

500 1000 1500 2000 2500 1990 1995 2000 2005 2010 2015 2020 2025 Number of poor people, millions (under 2 dollars a day) Non-fragile Fragile Total

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The Changing World: Inequality Threatens Social Stability

Better Worse No Change East Asia and Pacific 6 6 Sub-Saharan Africa 8 7 5 Latin America and Caribbean 12 2 3 South Asia 4 1 Europe and Central Asia 12 6 6 Middle East and North Africa 2 1 TOTAL 44 21 16

• Change in Gini coefficient by more than one percentage point between

most recent survey and five-year previous survey pre-2006.

• Skills premia, urban bias, falling labor share in GDP, labor-saving

technology, scale economies, can create growth-inequality trade-offs.

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The Changing World: Poverty in Africa

Number of poor (under 2 dollars (2005 PPP) a day ) Total net official development assistance (constant 2009, millions) 1990 2010 2025 1990 2010 2025 Africa 359 508 490 33,413 46,655 ? Rest of the world 1885 613 73 37,620 49,421 ?

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Development Needs: Financing the Global Poverty Gap

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 1990 1995 2000 2005 2010 2015 2020 2025

Poverty gap as a share of global GDP Resources needed to bring poverty gap

• f countries to 1 percent of GDP, as a

share of DAC GDP

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Development Needs: Funding the Infrastructure Gap

• G24 estimate: additional financing of $1 trillion per year on

top of existing flows of $0.8-0.9 trillion, with 80 percent in low and lower middle income countries

• ADB estimate of $8.22 trillion over 10 years only for Asia

(35-50% of global total)

• Only 20% invested by the private sector

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Development Needs: Targeting Countries

Africa, Fragile, High poverty gap, Low Income Africa, Fragile, High poverty gap Africa, High poverty gap Burkina Faso Angola Ghana Central African Republic Cameroon Lesotho Chad Cote d'Ivoire Mauritania Congo, Dem. Rep. Nigeria Senegal Ethiopia Sudan Zambia Kenya Liberia Africa, Low Income, High poverty gap Fragile, High poverty gap Malawi Benin Uzbekistan Niger Gambia, The Yemen, Rep. Sierra Leone Madagascar Togo Mali High poverty gap, Low Income Uganda Mozambique Cambodia Zimbabwe Rwanda Kyrgyz Republic Tanzania Low Income, Africa Africa, Low Income, Fragile None None Africa, Fragile Low Income, Fragile, High poverty gap None Bangladesh Haiti Fragile, Low Income Nepal None Tajikistan

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Environment for Bilateral Donors: Private Philanthropy

• Private philanthropic flows could be in the range of $60-75

billion per year

• Mobile money and other new technologies and

management structures are allowing the private sector to scale up (Kiva, Give Direct)

• A far broader range of NGO and private service delivery

and livelihoods projects are now available

• Will public service delivery be disintermediated by these

trends?

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Environment for Bilateral Donors: Emerging Economy Donors

• Non-DAC ODA is about $15 billion per year in aid and

growing rapidly

• BRIC countries alone have an estimated $750 bn in FDI

abroad

• South-South trade growing rapidly and is a powerful

instrument of development cooperation

• Coherent approaches to growth and development preferred

to project approaches

• “How to” experiences preferred to “what to” prescriptions
• Whole of government approaches

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Who Needs to Change: Aid Agency Relevance

0.5 1 1.5 2 2.5

GAVI Canada GFATM Sweden Finland Denmark Portugal AfDF USA GEF Ireland AsDB Special Funds Luxembourg Switzerland IFAD IMF (Concessional Trust Funds) Belgium New Zealand Netherlands United Kingdom Norway IDB Special Austria Australia EC IDA Korea UN (Select Agencies) Greece France Germany Italy Spain Japan