Should aid go to middle income countries?

1. Should aid go to middle income countries? Bond Seminar 9 May 2013 Anna Thomas

2. “If you’re not confused, you’re not thinking hard enough...”

3. Some basic assumptions • Aid is not the same thing as poverty reduction, or development • Aid can be spent directly on poverty reduction, or it can be spent on generating growth, or on catalysing change • Aid can have both positive and negative impacts

4. Growth, development and MICs As income category goes up, human development indicators improve... but inequality increases This average masks the fact that in some countries growth has coincided with falls in human development

5. Growth, development and MICs

6. Where do poor people live? 1990 Now

7. Where does EU aid go?

8. Three schools of thought • Fragility matters Focus aid on fragile states, which are mostly LICs • Poor people matter Aid should be allocated by development indicators not income level • Global community matters Aid is small; it’s role is to be a game changer

9. 1 Fragility mattersCollier, Kharas, Rogerson • MICs can eradicate poverty themselves; fragile MICs can’t • By 2025 poverty will be 80% plus in fragile states; that in MICs will have largely gone • These states don’t stand a chance of eradicating poverty without aid, and aid is limited, so it should be focussed here BUT • The 2025 projections may be optimistic

10. 2 Poor people matterNGOs, Ravallion • By 2030 half of poor people will still be in MICs (Sumner) • Can’t eradicate • marginal tax rates over 100% in some countries • Countries go in and out of MIC status • Won’t eradicate: • Aid can be focussed on poverty reduction if govt doesn’t • Aid to MICs more effective because more capacity BUT There’s not enough of it...

11. School 3 – global community matters • Aid cannot eradicate poverty directly, but it can play a game changing role – innovation, knowledge sharing • Collective purchasing systems • Research and data improvement • Public debate eg on tax • Connect policy makers, think tanks an academia • Implementation: poor people claim their rights Global public goods No aid dependency problems BUT Countries don’t need donors to do this...

12. ...I still don’t know what I think

13. The purpose of development aid • Should the underlying aim of aid allocation be to support a strategic attempt to eradicate global poverty, or to make life somewhat better for poor people wherever they live? • Should aid be allocated wherever it might be useful, or should an attempt be made to focus it? • Are the poverty and development indicators used to allocate aid fit for purpose, and if not what others might we use?

14. Aid and middle income countries • Where aid should go • If a MIC could afford to eradicate poverty within its borders using its own resources, should it still be allocated aid if it does not prioritise doing so? • Should aid be focussed more on the countries which have little hope of progress without it or the countries that have more capacity to make better use of it? • Should aid fund activities aimed at eradicating poverty directly (eg health, education, support for farmers) or should it act as a game changer (eg budget monitoring, data systems, tax system development)? • What is the particular added value of EU aid in MICs and what should NGOs be pushing for? • Aid and politics • If aid does act as a game changer, how should the aims of the game-changing be decided? • Should the aid preferences of middle income governments influence allocation? • Should NGO policies take any donor political motivations for aid allocation into account? For example, debates over aid in MICs may reflect changes in donor countries (e.g. the Eurozone crisis and austerity) as much as an evaluation of changing development needs in MICs