IGC response to IDC inquiry on Extreme Poverty and the Sustainable Development Goals

February 2022

About IGC

The International Growth Centre (IGC) works with policymakers in developing countries to promote inclusive and sustainable growth through pathbreaking research.

The IGC is a global research centre with a network of world-leading researchers and a set of country teams across Africa, South Asia, and the Middle East. Based at LSE and in partnership with the University of Oxford, the IGC is majority funded by the UK Foreign, Commonwealth and Development Office (FCDO).

We have resident teams of economists based in nine countries in Africa and South Asia, with very close and senior relationships at the heart of government, making us well placed to understand the impact of aid tackling extreme poverty.

Inquiry questions

1. How might the FCDO’s strategy, policies and programmes need to change as the number of people in extreme poverty grows due to the global pandemic or the effects of climate change?

Climate change

1. The IGC believes the only viable strategy for achieving climate change mitigation and adaptation in developing countries is through sustainable economic growth. Sustainable and inclusive economic growth is crucial to taking poor people away from the harms of climate change and there will be no political path to sustainability without growth.
2. Much of the transformation from poor, agricultural economies into modern, prosperous economies focused on services and manufacturing has not yet happened. There is an urgency to decarbonise the structural transformation process and, at the same time, protect vulnerable populations from environment change.
3. FCDO should consider four key transformations as key to addressing the sustainable growth challenge:
• Energy transformation - is the most fundamental, which must support increased access and consumption whilst developing a trajectory that will minimise emissions in the future.
• Spatial-connectivity transformation - that recognises the crucial link between increased connectivity and urbanisation to sustainable growth, adaptation to climate change, and to carbon emissions.
• Jobs-production transformation - is about making people and firms more productive, less damaging to the environment and more resilient to environmental change.
• Land use transformation - is about slowing destruction of the natural environment and preserving the world’s natural assets.
4. One major gap in mainstream economics and economic policy is sufficient focus on sustainable growth. Successful research on the economics of climate, energy and the environment will

require drawing on all corners of the discipline. It will be crucial for FCDO and its programmes to play a leading role in mainstreaming climate, energy and environment issues into economics and economic policy to get policy change across the board. Change is needed not just in ministries of environment but also in planning ministries, finance ministries and central banks.
 

5. For FCDO’s research and policy programmes like the IGC, achieving policy influence in climate change mitigation and adaptation will require an emphasis on strong data collection and measurement, increasing the body of evidence and mainstreaming climate change into the field of economics, and a strong understanding of national priorities and obstacles. A bottom-up approach to aligning sustainable growth with policymaker demands is key.

Social assistance

6. Throughout the pandemic, surveys conducted in developing countries across the world revealed that existing social protection programmes were not effectively reaching those most in need.
7. This was also true of social protection programmes pre-pandemic. IGC analysis of data from 123 countries shows that only 21% of the poorest receive social transfers in low-income countries as opposed to 73% in high-income countries.
8. Social assistance in lower-income countries is also less cost-effective. Social assistance in low-income countries delivers approximately 14 cents in poverty gap reduction for each USD spent on programmes, as compared to 45 cents in high-income, 32 cents in upper middle-income, and 29 cents in lower middle-income countries.
9. FCDO should examine the effectiveness of the social protection programmes it currently supports. Research has shown promising results for social policy designs that reduce exclusion errors, such as self-evaluation, opt-in, or universal schemes. Implementation channels such as digital transfers can reduce administrative costs.
10. Different social assistance programmes have varying effects on poverty likely due to differences in targeting, coverage, and transfer amount. FCDO should invest in collating and harnessing data from existing programmes with effective targeting mechanisms to understand the profile of the excluded population, and implement those learnings in future programmes.
11. In times of crisis, FCDO should not limit its relief efforts to existing social programmes in-country. In situations such as during the COVID-19 pandemic, the efficacy of existing social transfers to soften the blow of economic shocks is limited in regions such as sub-Saharan Africa.
12. Emerging evidence from Ghana and other countries does show well-targeted mobile money transfer programmes can be an effective policy tool to smooth consumption during pandemics, especially among the neediest populations.

2. How effectively does the FCDO review the outcomes of the projects and programmes it funds that tackle extreme poverty? What evidence is there that UK aid is being used to build pathways from extreme poverty to sustainable livelihoods?

13. One of the most compelling pieces of IGC evidence of UK aid being used to build permanent paths out of extreme poverty is the ground-breaking ‘graduation’ approach pioneered by BRAC (a long-time FCDO partner), which addresses both the ultra-poor’s lack of assets and skills, and aims to graduate them out of extreme poverty.
     
14. A seven-year evaluation by IGC researchers of this graduation approach in Bangladesh shows that a one-off programme providing the ultra-poor with both assets and skills (i.e., ‘a big push’) allows them to escape the poverty trap, suggesting a strong link between the type of work the poor can access and their ability to escape poverty.
     
15. The evidence shows that poverty traps in rural Bangladesh exist due to misallocation of talent. Poor people are not unable to take on more productive employment activities, they just lack the needed capital. Resources are not getting into the hands of those who can use them most productively.

3. What evidence is there to suggest the FCDO is learning and applying lessons from its policies and programmes, so they more effectively tackle extreme poverty and does the FCDO have a good evidence base for what does and does not work?

16. Recent analysis in November 2021 showed FCDO funded the most RCT studies published in top academic journals out of major global donors including USAID, the World Bank, and the Gates Foundation. Rigorous evidence of what does and does not work in tackling poverty is available although we cannot comment specifically on how much of this is applied in designing FCDO programmes.
     
17. From over a decade of IGC experience, we know that collaborating with policymakers and getting their buy-in when it comes to design and implementation of development programmes is a key driver of impact. Working directly with policymakers to support sustainable growth and develop a culture of evidence-based policy – directly through FCDO country offices or organisations like the IGC – has proven to be effective.    
     

4. What effect have the cuts in UK ODA had on the FCDO’s ability to address extreme poverty? What evidence is there to suggest poverty was a key consideration in deciding where the cuts should fall?

18. Returning to and maintaining the 0.7% aid target for the UK has immense benefits for FCDO-funded organisations like the IGC in achieving significant and sustained policy impact.

19. Long-term FCDO funding allows for longer timelines in budget planning, which is critical for delivering commissioned research and programmes and supporting the in-country engagements needed to impact policy decisions and processes that are key for tackling extreme poverty.

20. Large cuts to the funding of NGOs like BRAC, whose programmes have proven to be highly effective in getting millions out of poverty (see paragraphs 12-14) and have high financial returns, are detrimental to the scaling of ‘big ideas’ like the graduation approach.

5. How the FCDO can play a more effective part in the eradication of poverty as a convener, thought leader and investor.

21. The relationship between growth and eradicating poverty cannot be understated. FCDO must emphasise the essential ingredient to growth and economic development: structural change – the movement of people and resources from less productive to more productive sectors and activities, a fundamental shift in how the economy and markets work. Fostering this transformation is a crucial step in developing inclusive and sustainable economies.
     
22. Growth and structural change are ultimately the result of a series of microeconomic transformations, all aimed towards removing barriers to and facilitating the transition of people and resources towards more productive activities.

23. The FCDO should continue to be a leader in investing in transformational ideas, rigorously evaluating them, and scaling up the ideas that prove to be effective in tackling extreme poverty. Budget processes that allow organisations like the IGC to have longer term research horizons are critical. 
     
24. FCDO should put collaboration with policymakers at the heart of its work – ensuring that programmes and policies are informed by the realities and the priorities of developing countries. This will be especially important as developing countries recover from the pandemic and climate change rises to the top of the global policy agenda.

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