Double whammy hits UK aid budget

By staff writers
January 31, 2009

The economic and financial crisis could wipe a staggering $41billion in real terms, from the UK aid budget for developing countries over the next seven years.

New research carried out by the Catholic aid agency CAFOD reveals a double whammy as shrinking GDP and a weak exchange rate combine to impact on the UK’s aid budget.

The figure of $41billion is derived by comparing two scenarios. The first is what the aid spend might have been worth with a growing economy, no recession and the pound riding high against the dollar at $US 2.00. The second is what the aid budget is likley to be worth in the current serious recession with the pound valued at $US 1.50.

The figures assume that the UK will stick to its goal of increasing aid from its 2007 level of £5 billion (0.35 per cent of GDP) to reach the United Nations target of 0.7 per cent of GDP in 2014.

The shortfall will hit the poorest in the developing world at a time when they are most in need of aid, leaving them fighting for survival, CAFOD says.

The fall in the value of sterling has already cut the value of UK aid by at least 25 per cent. New calculations made by CAFOD highlight the toll that the recession is likley to take. Over the next seven years the cumulative cost of the recession to the UK aid budget could be as much as £7 billion.

CAFOD’s senior policy adviser, George Gelber, said; “These are huge sums and the impact will be all the more devastating because developing countries are being hit hard. The poorest people and the poorest countries are going to feel the hardest edges of the recession because they have less to cushion them from the crisis and they are most dependent on the resources and trade of richer countries.”

The domino effect of the recession is now reaching developing countries. These have been providing the raw materials to fuel Chinese manufacturing which has churned out goods for spendthrift consumers in the developed western economies. As a consequence, countries are now exporting less, at lower prices.

The powerhouses of the developing world have now slammed on the brakes. China's year-on-year imports fell by 17.9 percent in November; Chile's - by 14 percent; Korea's - by 14.6 percent; Taiwan's - by 11.3 percent; Vietnam's - by 7.8 percent.

With copper a third of the price that it was six months ago copper mines are closing and workers are being laid off all over Africa. Zambia, where copper accounts for 80 per cent of export earnings, will be hard hit – and the poorest Zambians will be hardest hit of all, says CAFOD.

CAFOD says it is beginning to receive reports from partners on the impacts of the global financial crisis as it reaches the poorest communities. In the slums of Nairobi poor families already have to survive on an income that provides less than half the basic necessities required by an average household. Now family budgets are being stretched even further as they are paying twenty per cent more for their maize flour. CAFOD partner the Jesuit-run Hakimani Centre, who carried out the cost of living surveys says this is pushing families into even deeper poverty.

“Bearing in mind 0.7 per cent in 2014 will be worth £1.5billion less than it would have been without a recession, said George Gelber, “the very least the government must do is to reaffirm its commitment to the 0.7% aid target and set binding year by year milestones until it is achieved in 2014."

Matteo Bocci, CAFOD’s Aid Effectiveness policy analyst, said: “In a period of economic and financial turbulence, this is the best way to support poor countries in the implementation of their anti-poverty plans.

“Now, even more than before, they need predictable and reliable aid which will deliver for poor people.”

George Gelber added: “It’s hard to ask for more aid when people in the UK are losing their jobs, but we need to think about the people for whom the global downturn will literally be a matter of life or death.”

Keywords:overseas aid | cafod
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