Extreme Poverty and the Sustainable Development Goals

Written submission to the International Development Committee by Development Initiatives February 2022

About Development Initiatives

Development Initiatives (DI) is a global organisation working with partners to ensure data-driven evidence and analysis are used effectively in policy and practice to end poverty, reduce inequality and increase resilience.

Introduction

The following submission provides our latest evidence on how well UK ODA has targeted the reduction of extreme poverty historically, during the crisis and since the merger of DFID and FCO. The evidence presented is based on the latest data available at the time of writing (February 2022). Updated UK data from the OECD DAC Creditor Reporting System (CRS) is expected to be released in the coming weeks. DI will assess this and will be happy to provide updated analysis to the IDC following its release. We additionally present data on spending published by the UK to the International Aid Transparency Initiative (IATI[1]) in 2020 and 2021 where DAC data is not yet available.

1. How well is UK Official Development Assistance (ODA) targeted towards tackling extreme poverty and how effectively do the FCDO policies and programmes contribute to the achievement of Target 1.1 of SDG 1?

Assessing the targeting of UK ODA towards the eradication of extreme poverty requires an understanding of whether it is reaching 1) the countries where extreme poverty is located and 2) the sectors within countries evidenced to provide the greatest benefit to the people in greatest poverty.

The UK’s share of bilateral ODA going directly into countries with poverty rates over 40%, has decreased from 15% in 2010 to 12% in 2019, while aid not targeting specific people or places has risen significantly.

The UK provided 12% of its bilateral ODA in 2019 to countries with more than 40% of the population living in extreme poverty, and a further 6% to countries with poverty headcount bands between 20% and 40%.[2] These allocations were approximate to the DAC average of 10% and 7% respectively. Compared to other G7 members the UK’s share to the above 40% poverty group was lower than Canada and the US, however, approximately more than double France, Germany and Italy, and triple Japan (see Figure 1). Out of all 29 DAC country donors, the UK was ranked 11th in its share of bilateral ODA targeted towards countries with more than 20% of its population living in extreme poverty in 2019, and 8th for allocation to countries with extreme poverty rates above 40%.

The UK’s share of ODA to countries with greater proportions of people in poverty has seen a decrease over time. In 2010, 15% of UK ODA went to the above 40% category, and 8% went to the 20% to 40% category.[3]

More than half of the UK’s bilateral aid in 2019 (51%) does not target specific countries.

The UK’s share of non-country specific ODA was 51% in 2019, among the highest of the G7 members and notably higher than the DAC average of 39% (figure 1). This has risen consistently, up from 39% in 2010. A component of such assistance includes regional aid - ODA supporting regional initiatives and multi-country projects. The remainder (83% in 2019), including a range of activities such as costs of hosting refugees, administrative costs, CDC capitalisation, global programmes and global public goods (including research), does not target specific people or places. Whilst aid supporting global public goods may benefit people in poverty, it does not explicitly target nor disproportionately benefit people in extreme poverty.

Figure 1: Bilateral ODA by poverty headcount band, UK, other G7 members and DAC average in 2019

Source: Development Initiatives based on OECD and World Bank PovcalNet

Notes: Extreme poverty is defined by the $1.90 a day international poverty line. Countries for which no poverty data is available are contained in the "no poverty data category", this category includes 27 countries. The number of countries in each poverty band are as follows: above 40%: 20 countries, above 20% to 40%: 16 countries, above 1% to 20%: 47 countries, 0% to 1%: 38 countries.

On a per-poor-person basis, UK’s ODA allocation is lower to countries facing greater poverty rates

On a per-poor person basis, ODA allocations are not equitable. ODA allocations per-person living below $1.90 a day in 2019 from the UK was under US$35 for every country with an extreme poverty headcount over 20% of the population (36 countries). Levels were under US$10 per-poor person in 29 of this group of countries and less than US$1 in 16 countries (15 of which were LDCs) (see Figure 2). Countries with over 20% of the population living in extreme poverty combined received a median US$1.8 per poor person per year. In contrast, countries with less than 20% of the population in poverty received a median ODA per poor person allocation of US$37 and countries with less than 1% of the population in extreme poverty received a median allocation of US$324.

Figure 2: UK ODA per-poor-person is lower for countries with higher poverty rates, 2019

Source: Development Initiatives based on OECD and World Bank PovcalNet

Notes: Extreme poverty is defined by the $1.90 a day international poverty line. Countries for which no poverty data is available have been excluded. The vertical axis has been capped at US$400 per person; 12 countries with an ODA per poor person greater than 400 are not shown to allow a clearer view of the majority.

UK ODA to Least Developed Countries (LDCs) has not responded to the increasing concentration of poverty in these places

LDCs are home to an increasing share of the world’s poorest people, rising from 31% in 2010 to half of all people in extreme poverty by 2020. However, UK ODA allocations have not shifted to reflect this (Figure 3) with UK bilateral ODA to LDCs falling from 32% of total bilateral ODA in 2010 to an estimated 24% in 2020. Disbursements reported to IATI suggest a further proportional decrease in UK ODA to LDCs into 2021. ODA accounts for a significant share of international inflows in LDCs compared to other countries and domestic revenues are limited. Thus aid has a significant role to play in these countries.

Figure 3: LDCs’ share of bilateral UK ODA has decreased while global share of poverty grows.

Source: Development Initiatives based on OECD DAC and World Bank PovcalNet data

Note: The ODA to LDCs is net bilateral as a share of total net bilateral ODA. 2020 ODA data is preliminary

UK non-country specific ODA has grown much faster than both ODA to LDCs and to other developing countries

DI’s analysis of UK ODA between 2010-2019 (figure 4) highlights that bilateral aid flowing directly to LDCs grew at a slower rate than its overall bilateral assistance. Bilateral aid to LDCs grew approximately 39% over the 10 year-period, greater than ODA to other developing countries (21%) but far less than ODA that does not target specific countries (118%). Year on year, ODA growth has also been more inconsistent for LDCs and other developing countries vis-a-vis non country specific aid which shows a consistent and significant rising trend.

Furthermore, preliminary data from OECD indicates that between 2019 and 2020 (figure 5), UK ODA to LDCs decreased in volume terms, from US$3.5 billion to US$2.8 billion, with IATI data confirming this trend into 2021.

In 2019, the UK provided 0.21% of ODA to LDCs as a percent of its GNI, achieving the Istanbul Programme of Action commitment for donors to provide 0.15–0.2 percent of their GNI in ODA to LDCs. While the UK might still meet this target in 2020 (when new OECD DAC data is released) it is unlikely that this is met in 2021 with absolute and relative falls in ODA to LDCs indicating that share of ODA to LDCs as a percent of its GNI will likely be lower.[4]

Figure 4: UK non-country-specific bilateral ODA has grown at three times the rate of aid to LDCs and over five times the rate of aid of other developing countries, 2010–2019

Source: Development Initiatives based on OECD DAC data

Notes: ODA Data is gross disbursements, constant 2019 prices. Non-country specific ODA refers to ODA which is allocated to several recipient countries within a specified region or across several regions or non-country programmable aid such as administrative costs, refugees in donor country and research costs. This data is currently only available up to 2019.

Figure 5. UK net bilateral aid to LDCs fell in absolute and proportional terms in 2020

Source: Development Initiatives based on OECD DAC data

Note: Data for 2020 is preliminary.

UK ODA to sectors that directly benefit those in extreme poverty is lower than the DAC average

While many types of investment and sectors can play important and supportive roles in development and poverty reduction, some sectors are particularly critical to the people living in greatest poverty in that their impact disproportionately accrues to those living in extreme poverty. These include areas such as health, education, agriculture, digitalisation, water and sanitation, social protection and crosscutting issues such as climate resilience and gender.  Looking at how ODA has been targeted to key sectors provides important context for understanding the overall impact of ODA in supporting the people living in greatest poverty. In the context of the UK, just over a third (around 35%) of bilateral ODA to LDCs was targeted to these sectors in 2019 (slightly lower than the DAC average of 37%).  While this clearly forms a notable share, it does not form the majority and, given the transformative role these sectors can play in poverty eradication and human capital development, greater investment in these sectors is needed.

UK ODA to some sectors critical to poverty reduction in LDCs has fallen since 2010

Our analysis (Figure 6) shows that aid to these critical sectors remained a relatively smaller proportion of total UK ODA to LDCs. Whilst there may have been an absolute increase in UK aid to some of these sectors, particularly in health, some critical sectors have seen a reduction in levels since 2010 such as agriculture and food security (US$175 million to US$165 million) and education (US$313 million to US$192 million). These trends have continued, as outlined in our analysis of UK aid cuts below.

Figure 6: Humanitarian assistance has outpaced growth in UK aid to other sectors in LDCs, 2010-2019

Source: Development Initiatives based on OECD DAC data

Note: Sectoral classifications are based on OECD DAC sector codes with DI sectoral aggregations for the categories ‘agriculture and food security’ and ‘business and industry’.

UK’s humanitarian ODA to LDCs has increased significantly over the past decade

Conversely, as highlighted by Figure 6, the UK’s humanitarian spending has increased significantly over the past decade, particularly in LDCs. Our 2021 Global Humanitarian Assistance report shows almost half (23) of the 47 LDCs in 2018[5] were facing a UN-coordinated plan to respond to humanitarian crises that year. Humanitarian need continues to grow, with the pandemic compounded existing crises. Crises slow the rate of poverty reduction and protracted, long-term crises (34 of 55 countries with UN appeals in 2020) are a fundamental inhibitor to progress. Collaboration across the “triple nexus” alongside sustained volumes of funding will be crucial to ensure development progress of previous decades is not lost, people in crises receive the urgent assistance they require, and sustainable development in the longer term is supported. The UK has been a leader on the triple nexus agenda but as highlighted in our work could further develop its policy and programming by developing further operational guidance to translate policy into strategy, embedding nexus approaches into programme design and expanding contingency financing mechanisms beyond humanitarian to development and peacebuilding assistance.

The upcoming International Development Strategy will be key to identifying FCDO’s policy priorities

The 2021 Integrated Review of Security, Defence, Development and Foreign Policy provided confirmation that the UK remains committed to reducing global poverty and achieving the SDGs, which had previously been absent from the seven strategic priorities set out by the Foreign Secretary in his letter to the IDC following the decision to deviate from their 0.7% obligation in November 2020. The upcoming UK international development strategy will set out the future of the UK’s development approach and how effectively it is enshrining extreme poverty reduction as a central consideration in allocating ODA.

Our analysis above highlights that across several metrics, UK ODA has become less poverty focused over time. As poverty becomes increasingly concentrated in LDCs and other challenging contexts this trend will continue unless there is policy prioritisation supported by an ODA allocation model that focuses on poverty reduction. Our recommendations for such a model are highlighted in response to the next question.

2. 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?

FCDO should respond to current and future impacts by ensuring its strategy and allocation model focuses on reducing extreme poverty and increasing resilience

Protecting past poverty eradication gains, supporting an inclusive recovery and ensuring resilience against future challenges means donors must:

●        Strongly focus on the poorest places and people – those most vulnerable to the crisis and already most at risk of being left behind. A leave no one behind agenda means prioritising the poorest people first.

●        Prioritise interventions and sectors that are most important to protect the lives and livelihoods of the poorest people.

●        Not further exacerbate existing challenges such as the debt crisis; more concessional and flexible finance will be vital for the poorest countries.

●        Invest in global public goods that benefit everyone, additional to the ODA budget

A coherent set of principles, backed by national and international political support, can inform these allocation decisions. In support of this and in consultation with DAC members, multilaterals, think tanks and academia, Development Initiatives have developed an evidence based, pro-poor aid allocation framework to guide donors in their decision making.

The framework proposes that FCDO should:

1)       Target the poorest people and places

a)       Identify where the people living in the greatest poverty live

b)       Identify who will benefit from any given investment – will investments disproportionately benefit those in poverty?

2)       Invest in sectors that disproportionately benefit people living in greatest poverty

a)       Prioritise investment in human capital: health, education and social protection

b)       Target the assetless in agriculture

c)       Enhance resilience to climate change of those living in poverty

d)       Ensure that digitalisation bridges, not widens, gaps

3)       Maximise sustained outcomes:

a)       Prioritise sizeable, integrated, long-term grant programmes in countries with the greatest poverty

b)       Strengthen real country and local ownership

c)       Reduce fragmentation by donor integration

3. 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?

In 2020 the Government announced they would reduce UK aid spending to 0.5% of GNI in 2021, allocating £10 billion to overseas aid in the spending review. However, the UK may further reduce the true value of its ODA by including in its reported figures elements (vaccine donations, Special Drawing Rights reallocation, debt cancellation and CDC recapitalisation) that do not result in a direct transfer of resources to developing countries (outlined in DI’s work here).

Development Initiatives’ expertise in the analysis of real time aid data, most notably that published to the IATI standard, has enabled us to provide partners with a clear understanding of the location of UK ODA cuts and the impact it may be having on UK ODA’s ability to address extreme poverty. Assessing more recent impacts have, however, by changes in the UK publishes its aid data to IATI.[6] As OECD DAC data becomes available, Development Initiatives will assess any changes to the UK’s allocations of aid.

IATI data indicates that poverty was not a central consideration for where cuts should fall

Currently available data indicates that poverty was not a central consideration in deciding where the cuts should fall, given disproportionately high cuts to ODA to LDCs and to specific sectors that benefit people in greatest poverty.

Our analysis of spending between 2019 and 2021 using IATI data highlights some key findings:

Former DFID programmes shouldered the majority of cuts

In 2021, our analysis highlighted that the former DFID disbursed a total of US$13.3 billion in 2020 (or £9.3 billion), a reduction of $1.3 billion (or £1.1 billion) compared with its disbursements for 2019, and a drop of 10%. FCDO programmes formerly run by DFID distribute around 90% (89.1% in 2019) of this aid. This means former DFID programmes were shouldering the vast majority of proposed cuts.

UK ODA spending fell by US$3.2 billion between 2020 and 2021

Total ODA spending by FCDO/DFID reported to IATI in 2021 currently stands at only US$8.8 billion, compared to US$12 billion in 2020. This spend includes some multilateral contributions and excludes the majority of spend previously under the control of FCO.  Despite having published many activities in December 2021, it is still not clear how many are remaining therefore all changes will be considered on a proportional basis only. 

UK ODA to LDCs saw disproportionately high cuts

Total UK ODA fell by 32% between 2019 and 2021, whilst ODA to LDCs fell by 50%.

Sectors critical for poverty reduction have seen UK ODA cut the most

Across all spending reported to IATI, disproportionately high cuts have been observed in sectors critical to poverty reduction, with total ODA spending on agriculture falling by 59%, education by 46% and water and sanitation by 52% between 2019 and 2021. For LDCs, the cuts to some sectors were even greater, with UK ODA to agriculture in LDCs reducing by 80% between 2019 and 2021.

FCDO, as expected, further prioritised health spending into 2020, with an increase of 14%. In 2021, the health prioritisation decreased but has not reverted entirely to pre-pandemic levels. However, for LDCs there was a year-on-year decrease in health spend observed across the period 2019-2021 with 18% of disbursements going to health in 2019, but only 13% in 2021. Governance also saw considerable decreases across the period whereas business sector spending to LDCs increased.

Aid going to specific countries, including to LDCs, has been disproportionately impacted by aid cuts vis-a-vis non-country specific aid

The proportion of bilateral ODA directly targeting countries fell from 37% in 2019, to 34% in 2020 and only 27% in 2021. In volume terms, this is a US$2.5 billion decrease from 2019 to 2021. Whilst non-country specific aid may benefit people and places facing extreme poverty, the linkages are less direct, and such investments do not specifically target or disproportionately benefit those in greatest poverty.

The largest cuts to activities in 2020 were observed in Pakistan, Uganda, Afghanistan, South Sudan, and DRC, 4 out of 5 of which are LDCs. In none of these countries has the funding increased considerably into 2021, however it is not yet clear given the delay in complete FCDO publishing.

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

The next two years will be pivotal to managing the pandemic and its social and economic fallout. This will require global coordination and action. The UK broadly, and FCDO specifically, must play a central role in this. In particular, the UK should:

●        Show global leadership by ensuring that poverty eradication and achievement of the SDGs are central to the upcoming International Development Strategy. In particular the UK could show the Leave-No-One Behind (LNOB) agenda is operationalised in practice by demonstrating how it will prioritise the needs of the people in greatest poverty first and how its programming and targets of aid will change to deliver this.

●        Drive global, coordinated action through multilateral efforts to end the pandemic, sustainably recover and to finance the SDGs, including at the upcoming UN High-level Thematic Debate on “Galvanising Momentum for Universal Vaccination”, the ECOSOC Financing for Development Forum in April 2022, the High-Level Political Forum on Sustainable Development (HLPF) in July 2022 and COP27 in November 2022.

●        Simultaneously show leadership in ODA for poverty reduction, returning the UK to its 0.7% GNI commitment, whilst being at the forefront of a necessary paradigm shift in how we raise international public finance, including supporting work on Global Public Investment, a new approach to concessional international public finance to meet the broader challenges of inequality and sustainability.

10