Should aid go to middle income
countries?
Bond Seminar
9 May 2013
Anna Thomas
“If you’re not confused, you’re not thinking hard enough...”
Some basic assumptions
• Aid is not the same thing as poverty
reduction, or development
• Aid can be spent directly on poverty
reduction, or it can be spent on generating
growth, or on catalysing change
• Aid can have both positive and negative
impacts
Growth, development and MICs
As income category goes up, human
development indicators improve... but
inequality increases
This average masks the fact that in some
countries growth has coincided with falls in
human development
Growth, development and MICs
Trend in human development and in inequality with income category
0.8
0.7
0.6
0.5
Human Development Index 2010
0.4
Gini index
0.3
0.2
0.1
0
LICs
LMICs
UMICs
Where do poor people live?
1990
Now
LICs
MICs
LICs
MICs
Where does EU aid go?
Chart 2 %EU aid to MICs
50
45
40
35
30
25
%EU aid to MICs
20
15
10
5
0
1990
2000
2009
Three schools of thought
1.
Fragility matters
Focus aid on fragile states, which are mostly LICs
2. Poor people matter
Aid should be allocated by development indicators
not income level
3. Global community matters
Aid is small; it’s role is to be a game changer
1
Fragility matters
Collier, Kharas, Rogerson
• MICs can eradicate poverty themselves; fragile MICs
can’t
• By 2025 poverty will be 80% plus in fragile states;
that in MICs will have largely gone
• These states don’t stand a chance of eradicating
poverty without aid, and aid is limited, so it should
be focussed here
BUT
• The 2025 projections may be optimistic
2 Poor people matter
NGOs, Ravallion
• By 2030 half of poor people will still be in MICs (Sumner)
• Can’t eradicate
– marginal tax rates over 100% in some countries
– Countries go in and out of MIC status
• Won’t eradicate:
– Aid can be focussed on poverty reduction if govt doesn’t
– Aid to MICs more effective because more capacity
BUT
There’s not enough of it...
School 3 – global community matters
• Aid cannot eradicate poverty directly, but it can play a
game changing role – innovation, knowledge sharing
–
–
–
–
–
Collective purchasing systems
Research and data improvement
Public debate eg on tax
Connect policy makers, think tanks an academia
Implementation: poor people claim their rights
Global public goods
No aid dependency problems
BUT
Countries don’t need donors to do this...
...I still don’t know what I think
The purpose of development aid
• Should the underlying aim of aid allocation be to
support a strategic attempt to eradicate global
poverty, or to make life somewhat better for poor
people wherever they live?
• Should aid be allocated wherever it might be
useful, or should an attempt be made to focus it?
• Are the poverty and development indicators used
to allocate aid fit for purpose, and if not what
others might we use?
Aid and middle income countries
•
•
•
•
•
•
•
•
•
Where aid should go
If a MIC could afford to eradicate poverty within its borders using its own
resources, should it still be allocated aid if it does not prioritise doing so?
Should aid be focussed more on the countries which have little hope of progress
without it or the countries that have more capacity to make better use of it?
Should aid fund activities aimed at eradicating poverty directly (eg health,
education, support for farmers) or should it act as a game changer (eg budget
monitoring, data systems, tax system development)?
What is the particular added value of EU aid in MICs and what should NGOs be
pushing for?
Aid and politics
If aid does act as a game changer, how should the aims of the game-changing be
decided?
Should the aid preferences of middle income governments influence allocation?
Should NGO policies take any donor political motivations for aid allocation into
account? For example, debates over aid in MICs may reflect changes in donor
countries (e.g. the Eurozone crisis and austerity) as much as an evaluation of
changing development needs in MICs