Professor Stephen Howes and Dr Cameron Hill expand on Devpol's 2024 budget breakfast to give an update on recent developments in aid volume and performance, plus upcoming multilateral replenishments.
On 14 May 2024, the Australian government delivered its first budget since the release of the 2023 international development policy and DFAT’s review of development finance.
Professor Stephen Howes and Dr Cameron Hill expand on Devpol's 2024 budget breakfast to give an update on recent developments in aid volume and performance, plus upcoming multilateral replenishments.
You can find Devpol's full analysis at the links below:
>> view the 2024 aid budget breakfast presentation
>> download the presentation slides
>> read the blog
>> view the Australian Aid Tracker
Speakers:
Professor Stephen Howes is Director of the Development Policy Centre and Professor of Economics at the Crawford School of Public Policy, The Australian National University.
Dr Cameron Hill is a Senior Researcher at the Development Policy Centre.
Photo credit: Department of Foreign Affairs and Trade
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Acknowledgement 00:24
We wish to acknowledge the Indigenous people of Australia, the wider Asia Pacific region, and other parts of the world, and express our respect for their traditional knowledge and practices, which stem from a deep connection to the lands and waters they have inhabited for millennia.
Amita Monterola 00:48
Welcome to Devpolicy Talks. Today we look at the aid budget announcement, not only the figures, but also the wider state of Australian aid effectiveness and development policy. I'm Amita Motorola, Editor of the Devpolicy blog, and I'm excited to be co-hosting the new season of this podcast with Robin Davies. We'll bring you a mix of interviews, event recordings, and in-depth documentary features related to the topics we research here at the Development Policy Centre. We're recording this episode on the lands of the Ngunnawal and Ngambri people in the Centre's cottage on the ANU campus in Canberra. I'm joined by Professor Stephen Howes, Devpolicy Director and Dr Cameron Hill, a senior researcher who has been focused on Australian aid through various roles during his career. Cam and I are currently planning the annual Australasian AID Conference, this year being held from the 3rd to the 5th of December in Canberra. Welcome to you both. Now, Devpol held its 13th aid budget breakfast this week, we were joined by about 200 people online. You can view the full presentation and download the slides from our ANU website. But right now we're going to discuss some of the main points and some questions we didn't get to. Firstly, Stephen does the spending in this year's budget and the years beyond reflect Labor's promise of an aid rebuild?
Stephen Howes 02:20
Well, you do see a small increase in this year's aid budget, over what was foreshadowed last year through the forward estimates and compared to the previous year. But overall, when we look at the forward estimates, and then the additional decade, which Labor's now given indicative aid spending for, the basic picture is that aid is being held flat in real terms. That is once inflation is taken account of, there's no increase in aid. Given that, you can say that Labor's preventing further cuts. But you can't really say that it's a rebuild, I mean, it's much more a flatlining of the aid program.
Amita Monterola 03:03
Some people at the aid breakfast were concerned that Australia was damaging its reputation as an aid donor by this flatlining. What has been the response to the announcement from the Australian community and partner countries?
Stephen Howes 03:20
Well, I noticed the ACFID, the peak body for the Australian development NGOs put out a commentary or response to the budget was fairly critical, that it wasn't more generous. There's also a similar peak body for the consultants and contracting companies. They put out a much more positive press release, noting that 3 to 4% increase this year. So I guess domestically, reactions have been mixed. Internationally, we haven't really seen a response to the budget. But in terms of media coverage, the main response and the main coverage of the budget actually comes from Pacific Beat on the ABC. And of course, just about every year, including this year, aid to the Pacific has gone up. So that's actually quite a positive response to that particular part of the budget.
Amita Monterola 04:15
Now, Stephen, in your view, what were some of the highlights of this year's budget when it comes to aid and development? That is if there were any?
Stephen Howes 04:23
There were no huge surprises in terms of new funding announcements. The main highlight is that there is an increase in aid to the Pacific. I think the share of the Pacific in the Australian aid program goes up by a couple of percentage points. I think it gets to 42%. That's a small increase this year. But if you go back over the last decade, you know 10 years ago, the Pacific was just over 20% of the aid budget. So there's been a huge transformation of the aid budget over the last decade with the Pacific share increasing from just above 20% to now just about 40%. In terms of the Pacific, that gain for the Pacific this year was directed to two countries: Tuvalu and Fiji. Tuvalu got a massive increase in aid from 17 million this year to 87 million in the next budget year. That's a huge increase, and a huge amount of aid for what is a very small country. And that's to do with the implementation of this new treaty that Australia and Tuvalu have signed. And then there's also an increase in aid for Fiji from $88 million to $123 million. That's to do with budget support for Fiji plus the recent agreement Australia signed to assist Fiji with a port expansion. Outside of the Pacific, there's a notable increase for Indonesia. And there was a flurry of activity around Southeast Asia this year with the big ASEAN Australia summit in Melbourne. And there's been a new flagship climate and energy initiative announced that Australia and Indonesia will work on, and so hence the increase in aid for Indonesia. Beyond country allocations, I think the big news, there are two multilateral funds or regional funds that Australia had already announced it was committing funds to but now we see how much will go this year, this coming budget year. And that's for the Green Climate Fund, and the Pacific Resilience Facility. And then finally, I'd say in terms of highlights, I mean, one thing that wasn't announced, but which you can see, which stood out to us when we went through the numbers, was a real cut to health spending. And, I guess the pandemic is receding, and priorities are elsewhere, this government stressed the importance of governance. And then it's spending a lot of money on infrastructure, partly in response to a competition with China. But also, there is a big push, and an understandable push, on climate spending. And if you're spending on climate, infrastructure is one of the most natural ways to do it. But with those spending pressures, and then an aid budget that is basically being held flat in real terms, something had to give, and it was health. And so the spending on health is down at 13%. That's down from 18% last year, and from a high of 20, above 20%, during the pandemic. So that's a surprise, probably not what you'd expect from a Labor government, especially with a pandemic sort of still fairly fresh in our memories. But I think it does speak to the pressures that the aid budget is under.
Amita Monterola 07:40
Well, it's been almost a year since the government released its international development policy. Cam, how are they travelling on implementation?
Cameron Hill 07:49
It will be a year in August, since the launch of the new international development policy by this government. We have seen, the policy itself was, to some extent more of the same, there wasn't a big shift in direction from the previous government. But there were some important commitments made around allocating more in aid two areas like gender equality, and climate change. They were probably two of the big headline shifts in the aid policy last year. And then a lot of new commitments around rejigging the plumbing of the aid program, around issues like performance, localisation, development, capability, monitoring and evaluation and those kinds of areas. So we've seen a bit of work already come out, it was good to see that Australia is now publishing, as part of a new program, the Performance of Australian Development Cooperation report, that came out a couple of months ago. And that was, that's quite a comprehensive look across the board at performance. So it's good to see that report back after a couple of years. I guess there's still a fair bit of work to do. The development policy said that Australia would complete this year, a suite of new development partnership plans, these are for countries and regions, so basically can't new country and regional strategies. We're yet to see any of those. And it also committed to new thematic strategies in areas like gender, disability, and humanitarian assistance. So and we're yet to see those but I expect people in DFAT that are working on those are hard at work, and we'll see those come out in the coming months. So almost a year since the release of the policy, we have seen some positive work on I guess the performance side, and we can look forward to new country and regional strategies and new thematic strategies over the coming months.
Amita Monterola 10:09
One initiative that was announced in the international development policy was a civil society fund. Is there any sign of that in the budget this week?
Cameron Hill 10:19
Not as far as we know, and there was nothing announced in the budget on that. This is an area that's obviously being followed closely by ACFID and the NGO community. I think one of the important things, though, with that fund is that it is, doesn't become a driver, I guess, for increased fragmentation of the aid program. And I would argue that in order to get the most out of this fund, it should genuinely be directed towards, funding local, private sector, and non-government organisations more directly, rather than and, really be linked to bigger programs of work around the localisation agenda. Because I think the danger is that this is probably going to be not a very big fund and that it's spread across a number of very diverse parts of the program. So I think linking it to bigger programs, and also making it genuinely local in the sense that it provides direct funding to local organisations or private sector.
Amita Monterola 11:28
Keeping to the topic of localisation. Steven, both in your budget night blog, and at breakfast, you chose this year to focus on performance and locally led development. How's the government been progressing? And what can they do differently?
Stephen Howes 11:42
The budget provides a good opportunity to not only look at the numbers, and the trends, but also to reflect on issues around performance. And so we keep a sort of dual focus both on quantity and on quality. So as you say, in the blog, and then in the budget breakfast, as well as looking at the budget numbers, we also raised a few key performance issues. And that's also timely, because the government has just released its first performance report under this new policy. And two of the sort of key performance areas highlighted both by the policy and then reported on in this first performance report relate to the overall performance of the aid portfolio and localisation. Yeah, so on aid performance, that's something we've been tracking for a long time. And we've been, or what I highlighted was that the government's now adopted two measures, it's gone back and forth. It used to have just one measure, which was the overall ratings that all the projects received in the annual performance assessment, it then discarded that measure in about 2020, because those ratings are provided by the managers of the investments themselves. And you can imagine that they're not going to be an unbiased source of information. Everyone tends to think that their project is doing pretty well. So in 2020, they moved to a more independent system of project assessment, but that was only focused on completed projects. Now, they're reporting on both. And the problem with that, is it makes very clear that there's a huge gap between these two performance indicators. And I guess that's something we wanted to highlight. And something that we want to emphasise to DFAT is a problem they need to address. Yeah, so that's on formative assessment, on localisation I think we're very supportive of that as an agenda. But we're not sure they've got the right performance indicators. So I highlighted one performance indicator that was missing that I thought should be there. And that's just the support the Australian government provides to counterpart governments. rather than spending money through these projects, run by Australian NGOs or Australian companies, you're actually handing over the money to government. If you're in favor of localisation you've got to be in favor of supporting national governments when you can. And in fact, the Australian government has been supporting national governments a lot more than it did in the past, that started happening during COVID with the fiscal stress, and it's actually continued on past COVID. So it's actually a good news story. And I think it's one the government should highlight as an achievement of its localisation agenda.
Amita Monterola 14:32
So the government hasn't been talking about budget support. But what do we know about the recipients? Can you tell us a little bit about which countries benefited the most during the COVID period?
Stephen Howes 14:42
I think most budget support through the aid program actually went to Fiji. Fiji had a huge hit because of its dependence on tourism. So it really needed the money. Plus the Fijian government is fairly well run, and open to sort of economic reform, policy dialogue, that's always part of the budget support package. It's not just money for nothing, the Fijian government was prepared to engage in those policy reform discussions. And so it had both the need for the funding and the ability to basically meet the requirements to get the funding. So I think Fiji was the major, major recipient, and part of the extra funding in this new budget is also budget support for Fiji. So it looks like that will continue. So yeah, I think budget support - we're still talking about less than 10% of the aid program, right, we're not talking about the main way in which aid funding is being spent. It is a very useful instrument, and it should be seen as part of the localisation agenda. But actually that was missing from the performance indicators that were put forward in this report. And instead, what you had was an indicator around the number of local staff or national staff, being hired by managing contractors, and managing contractors are basically Australian companies that are hired to run these aid investments. And I'm a lot more skeptical about that as an indicator. I mean, there's nothing wrong with hiring national staff, of course, often they are the best staff for the job. But I don't think it's a form of localisation, and especially in smaller countries, and in fragile states, it can actually have a negative impact on locally led development, because normally, our donors pay pretty well. And talented workers, whether they're in government, in the private sector, or non-government organisations, are then attracted out of their employment to work for an Australian aid program, investment, and they may well have less impact actually. So I think rather than embracing this as an indicator, we need to have a much more critical and in depth look at the pros and cons of hiring local staff, and in particular at what our salary policy is. And just making sure that in small countries and fragile states, we're not having that unintended consequence of actually undermining locally led development.
Amita Monterola 17:19
On that wage policy, we've had a few questions about how it might work in practice. Could you outline how it might be implemented?
Stephen Howes 17:28
So I would start in the smaller countries, not in Indonesia, I think a country like Indonesia has got so many skilled staff that you can afford to have some working for donors. And there's still plenty to work for governments and NGOs. But I'd start in the smaller countries, probably in the Pacific. And I just look at where these local staff are coming from. And I talked to some of those local entities, whether they have a sense that they're finding it difficult to retain staff, whether they're losing staff. So I do that as my first step. And then if that if that was a problem then I'd look at, I'd start comparing how much staff are being paid by the manager contractors relative to how much they're being paid by the national government, in the partner country, or by those local NGOs. And I think then you'd have to say, well, are we paying, if there is a problem and if there is a large difference, are we paying these people too much? At the moment, as I understand that there is no actual salary policy for specific aid recipient countries. You can't, contractors can pay their staff, basically, whatever they want, wherever they are. And given the potential of a problem, and frankly, given what I've heard, just on the grapevine about how it is a problem that organisations are losing staff, this kind of review should be undertaken. And out of that you could develop a locally tailored nationally appropriate salary policy for specific countries. Obviously, you wouldn't do it for every country, but you do it for the important ones. And as I said, the ones that are smaller, and where the aid program is an important presence and there is a potential large distortion.
Amita Monterola 18:43
Cam, at the aid breakfast, you talked about the pressures on Australia's multilateral aid over the next few years. What is Australia weighing up when it makes these decisions?
Cameron Hill 18:49
Over the next couple of years, there will be some big replenishment meetings of some of the biggest funds that Australia contributes to, so we've just had the replenishment of the concessional arm of the Asian Development Bank, which is called the Asian Development Fund. At the end of this year, there will also be a replenishment of the World Bank's concessional arm, the International Development Association. And beyond the end of this year, there's also big replenishments coming up for some of the big health funds like The Global Fund, Gavi the Vaccine Alliance. So we do have this pressure point of, in the next two years, some of these big multilateral funds coming out for their regular replenishments. Now, Australia's not a big, multilateral core donor, we don't provide a lot of core funding to multilateral donors compared to our peers. I think in 2022, it was about 15% of Australia's overall aid budget was in the form of core funding for multilateral organisations. And it has dropped, it seems to have dropped over time, the average between 2016 and 2022 was about 20%. It does vary over years because of the replenishment schedules, the payment schedules associated with these contributions. But it does seem to have declined between 2016 and 2022. So it is a relatively small part of the Australian development budget. But it's a very important part because it's the part through which we contribute to these big important global public goods in areas like public health, climate change, and so on. So yeah, these pressures are real. And Australia will have to make some judgments about where it wants to sit in terms of the contributions to these organisations. In the case of the Asian Development Fund, we made an increased contribution of $492 million a couple of weeks ago, that will likely keep us at second overall. So we've maintained that position in the Asian Development Fund, just behind Japan. But on the World Bank International Development Association, that fund we have fallen, over the last decade, we've fallen from about 11th, down to 18th. And so that'll be an interesting one to watch whether we fall further potentially, or whether we are able to increase. In terms of managing these upcoming pressures on the multilateral budget, I think there's a couple of things to say the first is obviously that an overall growth in the aid budget, would give us more room to contribute to these funds. Given that so much of our aid budget is now regionally focused, it's very hard to increase our contribution to these funds in the absence of an overall increase to the budget. So I think that's the first thing to say, an increased aid budget would give us more space to contribute to these big, global public goods. Secondly, I think obviously in making judgments about different funds to contribute to, it will be important that that's evidence based. And as far as possible, I think the government should release its assessments of multilateral performance. We have done so in the past. And putting those in the public domain and making clear why Australia is making particular tradeoffs between these multilateral funds will be important. And third, and perhaps more radically the government should contemplate the idea of compensating the aid program for fluctuations in the exchange rate. So a lot of these contributions are made in US dollars. And the Australian dollar has gone down a lot relative to the US dollar over the last few years. And in the case of defence, which goes out and buys a lot of foreign military equipment, the Department of Finance actually compensates them for the exchange rate loss. But that's not something that happens in the case of the aid program. And that's why for some of these funds, we've really tumbled down the rankings. So I think, this would be a big call, but I think, the Australian Government should think about topping up the aid program to contribute to these global funds, in cases where the Australian dollar is negatively impacted by the US dollar exchange rate.
Amita Monterola 23:20
This budget may be the last budget before a federal election. And then there are a number of political events on the global calendar before the end of 2024. What's going to have the most impact?
Cameron Hill 23:25
I don't think our election necessarily will have a big impact on how much we do or don't contribute to these funds. I think the bigger election to watch is the US election in November. So if we see a Trump administration come in in November, I think it's likely that that would have a big impact on multilateral organisations working in areas like gender equality, climate change, sexual and reproductive health. And there may be more pressure on donors like Australia to contribute more to make up any shortfall that could be caused by an incoming Trump administration. So I think given the US's size when it comes to aid, it's a stingy, multilateral donor as a proportion of its overall aid but in volume terms, it is the biggest contributor across many of these funds. And so if we were to see a major retrenchment in areas like health, climate change, gender equality, then I think there would be a call on countries like Australia to do more.
Amita Monterola 25:00
Thanks Cam and Stephen. You can catch up with the aid budget breakfast presentation on Devpolicy, YouTube, or the ANU website. We also have the Australian Aid Tracker, which has become the go to site for anyone interested in up-to-date trends and comparisons regarding Australian aid. Our research officer Sharon Liu has recently expanded it and improved it. So check out some of the new sections, including comparisons of the gender and climate investments. The research presented today, and in the Australian Aid Tracker is supported by the Gates Foundation.
Devpolicy talks is the podcast of the Australian National University's Development Policy Centre. Show notes are posted to Simplecast. Our producers are Robin Davies, Amita Monterola, and Jackie Hanafie. You can read and subscribe to our daily blogs on aid, international development, and the Pacific at devpolicy.org. And you can follow us on Facebook, LinkedIn, Instagram and Twitter. You can send us feedback and ideas for episodes to devpolicy@anu.edu.au. Join us again in another fortnight for the next episode of Devpolicy Talks.