Budget Review 2020–21 Index

Dr Angela Clare

Australia’s Official Development Assistance (ODA) will remain at $4 billion in 2020–21, down $44 million from last year and in line with the Government’s freeze on aid funding expected to remain in place until 2022–23.

The Government also announced a one-off supplement of $304.7 million for the COVID-19 response in the Pacific and Timor Leste over the next two years, and is providing a further $23.2 million for vaccine access and health security in the Pacific and Southeast Asia over three years (Budget Related Paper 1.6: Foreign Affairs and Trade Portfolio, p. 19). These measures effectively increase Australia’s total aid expenditure to $4.211 billion in 2020–21, but for reasons not entirely clear they will not be counted as ODA. Long-time aid observer, Australian National University academic Stephen Howes, has suggested that the Government is ‘trying to keep the increase in aid hidden ... to continue to be seen to be tough on aid’, or that it ‘does not want to be seen to be providing a permanent boost to aid’. He also noted that this is ‘the first budgeted aid increase under the Coalition since their election to office in 2013’.

The 2020–21 ODA budget of $4 billion represents a one per cent fall in nominal terms on last year’s budget estimate of $4.044 billion. ODA as a proportion of Gross National Income (GNI) is up slightly from 2019–20 at 0.22 per cent, due to Australia’s lower GNI this year (Figure 1). Australia remains below the Organisation for Economic Co-operation and Development (OECD) country average of 0.30 per cent, and among the least generous donors.

Figure 1: Australia’s ODA to GNI ratio, 1972–73 to 2020–21

Source: Australian Council for International Development, 2020–21 development budget: facts and figures

Australia’s spending on ODA as a proportion of government expenditure continues its downward trajectory, falling from 1.32 per cent in 2012–13 (and a high of 2.43 per cent in 1971–72) to 0.62 per cent in 2020–21. Stephen Howes has also noted that the ratio of defence-to-aid spending hit a record high in 2020.

Geographic focus

Australia’s aid to the Pacific continues to increase in line with its Pacific Step-up, offset by further cuts to South and West Asia, Africa and the Middle East. Aid to Southeast Asia has remained steady. Table 1 below shows Australian aid flows by region since 2018–19, while Figure 2 shows trends in regional allocations since 2010–11.

Table 1: total Australian ODA, 2018–19 to 2020–21, ($ million), by region

Region	2018–19(a) (actual)	2019–20(b) (estimate)	2020–21(b) (estimate)
PNG and the Pacific	1 252.5	1 381.4	1 440.6
Global and other ODA(c)	1 339.2	1 187.4	1 260.6
Southeast and East Asia	1 089.6	1 005.8	1 009.9
Middle East and Africa	347.5	199.8	93.0
South and West Asia	343.2	266.2	193.4
Latin America & the Caribbean	7.1	3.3	2.5
Total ODA	4 379.1	4 044.0	4 000.0

Sources:

(a) Department of Foreign Affairs and Trade, Australia’s international development assistance: statistical summary 2018–19, December 2019.
(b) Department of Foreign Affairs and Trade, Australian aid budget summary, 2020–21.
(c) Includes regional and global programs that cannot be disaggregated to a lower geographical level.

Figure 2: Australian bilateral aid flows by region, 2010–11 to 2020–21 (constant 2020 $AU)

Source: ANU, Australian Aid Tracker: Destinations.

Pacific

The Pacific remains Australia’s foreign policy priority, with ODA to the region increasing by $50 million over last year to total $1.44 billion—Australia’s highest ever aid spend in the region. Australian development assistance will extend the Pacific Step-up’s support for economies, regional stability and security to ‘support the delivery of critical health and education services, budget support and job creation, including through skills training and transformational and climate resilient infrastructure’.

Details of how the $304.7 million COVID-19 Response Package will be allocated are not yet available, but the Department of Foreign Affairs and Trade (DFAT) has advised that of the aid funds repurposed for the
COVID-19 response in the Pacific, $100 million has been earmarked for budget support. Pacific Island countries will also benefit from the Government’s commitment to procure and deliver COVID-19 vaccines for the region through the COVAX Advance Market Commitment.

While funding to PNG and the Solomon Islands—the largest recipients of Australia’s aid in the Pacific—has dropped slightly on last year’s estimates, most other countries have seen increased funding: Vanuatu receives a 14 per cent increase (an extra $9.5 million), Tonga 32 per cent ($8.5 million), Samoa 16 per cent ($5.2 million), and Tuvalu, a 44 per cent increase (an extra $4.1 million). Regional programs have increased by 14 per cent ($48 million), to total $384.5 million.

The Government’s flagship Pacific Step-up initiative, the $2 billion Australian Infrastructure Financing Facility for the Pacific (AIFFP) has approved three projects so far, with only one releasing funding details: the AIFFP is contributing $1.5 million to an undersea telecommunications cable study in Timor Leste. Other projects approved for funding are the Solomon Islands Tina River Hydropower project and the PNG Markham Valley Solar Farm project. A further five projects have been endorsed by the AIFFP Board.

The Australia Pacific Training Coalition will receive $38.8 million to support work readiness and skills development in Pacific Islanders—including for employment in Australia—with ‘a focus on workers that have lost jobs due to the pandemic’.

Southeast and East Asia

ODA to the region remains virtually unchanged, although some bilateral programs have seen modest increases on last year: Timor Leste receives an extra $4.5 million, Myanmar $7 million, and Laos $2.1 million. Measures to note include a $60 million package of initiatives to ASEAN countries to strengthen health security and the region’s COVID-19 response, economic integration, digital connectivity, and support for the most vulnerable people and communities.

South and West Asia

Overall aid to the region has been cut by 27 per cent, with three countries seeing the largest falls: Afghanistan drops from $82 million to $54 million, Bangladesh $70 to $56 million, and Pakistan from $32 to $11 million. Australia no longer provides bilateral aid to Pakistan—a move that has been strongly criticised by commentators—but continues to fund regional and humanitarian programs in the country.

The Middle East and Africa

Aid to Sub-Saharan Africa drops by 48 per cent to $61.4 million, while aid to the Middle East and North Africa falls by 61 per cent, from $80.9 million to $31.6 million. These cuts come on top of a 23 per cent reduction in Australia’s aid to the Middle East and Africa in last year’s Budget.

Humanitarian and emergency

At $475.7 million in 2020–21 the Government has moved closer to its target of $500 million for humanitarian programs, announced in the 2017 Foreign Policy White Paper. The Humanitarian Emergency and COVID-19 Response Fund (previously DFAT’s emergency response fund) has increased by 25 per cent, but the International Committee of the Red Cross, the World Food Programme and the United Nation’s Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) have all seen cuts. The Government is reported to be maintaining its response to the Rohingya crisis.

Global and regional programs

Gender equality initiatives and regional health, water and sanitation programs in the Pacific and Southeast Asia have been boosted, while spending on other sectors, including infrastructure and rural development and climate-related programs has been cut. Community engagement programs have also seen falls (noting that some scholarships and volunteer programs have been unable to proceed due to travel restrictions), with CBM Australia—the leading disability-inclusive international development agency—reporting that aid funding for people with disabilities has been cut.

Global investments to note include Australia’s $80 million pledge to Gavi’s COVAX Facility, a global coordinating mechanism to support the equitable distribution of a COVID-19 vaccine, once one is available.

Australia’s 2020–23 contribution to the World Bank’s International Development Association (IDA19) is down by 26 per cent from its 2017–20 pledge, and 46 per cent lower than its 2011–14 contribution. Australia is now the 18th largest donor under IDA19, compared to its position as the 12th largest under IDA18.

COVID-19 and the aid program

With the impacts of COVID-19 felt most acutely by the poorest and most vulnerable, development agencies have estimated that up to half a billion people may be pushed into poverty.

In May the Australian Government acknowledged the pandemic’s threat to global development with the release of its development response to COVID-19, Partnerships for Recovery. The policy refocused the aid program on minimising the pandemic’s impact in the region, with particular focus on helping governments in the Pacific and Southeast Asia deliver essential medical and social services, strengthening health systems, and providing economic recovery measures, including emergency budget support.

The Australian Council for International Development (ACFID) welcomed Australia’s Partnerships for Recovery strategy, but criticised the lack of additional funding for its delivery, calling on the Government to do more to address health and livelihoods in the Asia-Pacific and the growing humanitarian crisis around the globe.

The 2020–21 Budget’s additional $304.7 million COVID-19 response package for the Pacific and Timor Leste has been welcomed as a much-needed addition to Australia’s support. But aid groups remain disappointed that it failed to prevent further cuts to countries and programs with high needs, such as South and West Asia, Africa, and the World Food Programme.

In its budget response, ACFID argued that ‘reductions in South and West Asia belies the Government’s intentions to be an Indo-Pacific partner-of-choice’.

Aid groups were also disappointed that the additional funds do not represent a permanent increase to the aid budget, with Oxfam, for example, contending that the Budget ‘falls well short’ of what is needed.

Labor’s Shadow Minister for International Development, Pat Conroy, argued that although the Opposition is supportive of the Pacific Step-up, ‘it shouldn’t be at the expense of assistance to other key strategic partners’, such as Indonesia, to which, he says, the Government has cut aid by 50 per cent.

Strategic considerations—most prominently, countering China’s growing influence in the region—play an important role in Australia’s development assistance to the Pacific. Recent Lowy Institute analysis identified a ‘surge’ in foreign aid to the Pacific in 2018, ‘as geopolitical competition in the region began ramping up’. Its analysis shows that expenditure on health has remained ‘subdued’ despite the health challenges the region routinely faces, possibly due to competition from the ‘more “strategically significant” sectors of governance and transport’.

While few disagree with the need to fund development priorities in the Pacific, such as the ‘glaring gaps’ in domestic health services, some analysts question the merit of Australia’s ongoing aid increases to the region. The ANU’s Stephen Howes has observed:

It makes no sense to take $28 million from a country like Afghanistan whose people are really suffering and give it to relatively stable and comparatively prosperous countries such as Samoa and Tonga. But, while the share of Australian aid going to the Pacific seems destined to continue to increase, it is something of a victory to at least see the government concede that the Pacific Step-up cannot be executed without an increase in total aid.

Global trends

Fears that COVID-19 will accelerate the trend towards a more ‘Hobbesian’, less cooperative world have prompted calls for wealthy countries to do more. The Economist observes that whereas governments in rich countries have spent over 10 per cent of GDP on pandemic recovery, the poorest nations have spent less than one per cent. Safety-nets in low-income countries are ‘cobweb-thin’, with governments handing out ‘only $4 extra per person on social programmes—in total, not per day’. The OECD contends that hard-won development gains are being lost, ‘putting even further strain on developing countries to respond’.

Aid flows have already been hit by the pandemic, with traditional OECD donors in 2020 reported to have cut aid by a third from last year: the UK’s aid commitments are estimated to be down by nearly 50 per cent, while in June delays to US humanitarian assistance were described as ‘devastating’.

The OECD acknowledges that while ODA is not ‘a replacement for strong domestic public financial management’, it can be crucial in times of crisis. ODA can play a stabilising role and be ‘a transformative force’ to guide sustainable recoveries in developing countries. Compared to private finance, official development flows are:

... more easily shaped by political leadership, decisions and co-ordinated action that prioritise an inclusive global recovery. Greater transparency of grants and official lending to developing countries from other providers can also make a big difference for the recovery. At present, developing countries do not have a complete picture of all sources of financing for development, which can also undermine debt sustainability and macroeconomic stability.

In particular, the OECD argues, official support can play ‘a key role in building health and social protection systems in developing countries, which are critical to countries’ ability to respond to the COVID-19 crisis and are central to resilience and recovery’.

 

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