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Fact Sheet: Aid, Debt Relief, and Trade: Progress on Commitments made in Monterrey and the Role of the International Financial Institutions (IFIs)

Aid

Official Development Assistance worldwide continued on an upward trend in 2005, but 2006 saw a pull back in aid.

  • Development assistance climbed to a record $106.8 billion in 2005, but most of the increase represented debt relief. Preliminary data suggests total aid fell to about $103.9 billion in 2006. This puts the goal of doubling of aid to Africa by 2010 in doubt.
  • A wide range of developing country donors are increasing their aid to poor countries—and these amounts are expected to rise. Aid from countries like Korea, Mexico, and Turkey is likely to double by 2010 to over $2 billion. Countries like Brazil, China, India, the Russian Federation, and South Africa are becoming important aid providers—China was the third-largest food aid donor in the world in 2005 and is fast becoming the leading foreign creditor to Africa.
  • Aid flows from private citizens more than doubled over 2001-05 reaching $14.7 billion.

The concentration of aid in a few countries is not consistent with efforts to broadly accelerate progress toward the MDGs.

  • The current concentration of aid in a handful of countries leaves the majority of countries with little or no real increase. Between 2001 and 2005 real aid volumes grew by over 50 percent, but only 16 of 81 IDA countries saw aid increase by 50 percent or more, and just over half of IDA eligible countries saw a decline in aid received during this period.
  • Five years after the Monterrey Conference and nearly two years after Gleneagles, there is little evidence of a scaling up of aid in support of the MDG agenda in Africa. The latest data show that beyond debt relief and special initiatives, most countries in Sub-Saharan Africa are not seeing an increase in resources to support development projects and programs.

There is encouraging evidence that aid allocation is becoming increasingly selective on the basis of need (poverty) and the quality of policies (governance).

There has been real progress with donor harmonization and alignment.

  • Two-thirds of Development Assistance Committee (DAC) donors place strategic priority on implementation of the 2005 Paris Declaration on Aid Effectiveness, and efforts to monitor and track progress with its implementation are gaining traction.
  • According to the 2006 Baseline Survey on Monitoring the Paris Declaration, 43 percent of aid is now provided through program-based approaches such as direct budget support and sector-wide approaches. One-fourth of missions are joint, and about half of country analytic work is joint.

Debt Relief

A landmark year for debt relief followed the 2005 G8 Summit in Gleneagles. The International Development Association (World Bank), International Monetary Fund, and African Development Bank implemented the Multilateral Debt Relief Initiative (MDRI) providing debt relief at a cost of about $50 billion. In March of this year, the Inter-American Development Bank approved debt relief (in line with the MDRI) of $4.4 billion.

  • Twenty-two countries have benefited from the MDRI to date, providing about $38 billion, in nominal terms, in debt relief. The ongoing HIPC initiative also saw substantial progress, and 30 heavily indebted poor countries had reached decision point—22 of these have reached the completion point—and were receiving debt relief as of end-March 2007.

Trade

World trade in 2006 continued the strong growth trends of recent years. 

  • Developing country export growth continued to outpace the global average, growing by 22 percent. Trade performance reflects continuing unilateral trade reforms. Average tariffs in developing countries have fallen from around 16 percent in 1997 to 11 percent in 2006.
  • Due to the steady reduction of tariffs, overall trade restrictiveness has declined in recent years. With the exception of several African countries, most economies are now less trade restrictive than they were in 2000.

A narrow window of opportunity exists to reach agreement in the first half of 2007 on the key elements of a deal in the Doha Round.

The Role of the International Financial Institutions (IFIs)

Concessional funding from IFIs to low-income countries is now stagnant

  • In 2006, the five multilateral development banks (MDBs) disbursed $43 billion, up 20 percent over 2005 levels. Non-concessional gross disbursements increased by 29 percent to $32 billion, the highest level since 1999. After strong growth in concessional gross disbursements since 2000, flows peaked in 2004 at just over $11 billion, declining slightly in 2005-2006.
  • In terms of overall ODA flows, the contributions to these MDBs has fallen significantly since 1998 to 6.5 percent; it is important that the pace of increase of contributions to these MDBs not constrain the relative importance of these institutions in the future.
  • Debt relief under the MDRI has further potential repercussions for future IFI financing, in particular for the African Development Bank and the World Bank’s International Development Association (IDA), which have provided debt relief extending out to 40 years. IDA, AfDF and the IMF have already provided about $38 billion in irrevocable, up-front debt relief, and the full costs are expected to be around $50 billion.

Substantial actions are being taken in many areas of harmonization and alignment, including the use of joint or collaborative country assistance strategies, but continued efforts will be needed to achieve the 2010 targets.




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