More Bang for Your Buck: Making Foreign Aid More Effective
A highly contentious issue, the effectiveness of U.S. foreign aid has long been the subject of debate among congressmen and concerned citizens alike. From how much money is allocated to recipient nations to the impact that aid actually has on issues such as poverty and civil war, advocates and critics of foreign aid point to various criteria to evaluate the merits, or lack thereof, of continued U.S. aid.

The Case for Aid

Proponents of foreign aid insist programs are instrumental in fostering socioeconomic growth, reducing poverty and improving the overall quality of life. There are certainly examples that support this notion. USAID-funded programs have significantly reduced maternal and child mortality, helping at least 4.6 million children and 200,000 mothers, according to agency officials. As of 2015, more than 7.6 million people had received improved access to drinking water and more than 4.3 million people had improved sanitation. Furthermore, 41.6 million children saw improved reading instruction and safer learning environments between 2011 and 2015.

Foreign Aid Skepticism

Yet critics of aid remain steadfast in their opposition, pointing to fraud and corruption, lack of transparency, foreign aid dependency and general ineffectiveness as indicators. Around $1.17 billion in aid that was given to Malawi in 2012 was exploited by corrupt politicians and businessmen. At least $30 million was taken from the treasury and robbed from the 17 million poor and AIDS-ravaged inhabitants. In fact, these sentiments are so strong that, according to ABC News-Washington Post polls, “the only possible federal spending cut a majority favored was for foreign aid.”

Clearly, there are two sides to the story when it comes to foreign aid. When allocated and distributed properly, it can work wonders for the world’s poor and developing countries. However, corruption and misuse still stand in the way of much of its potential. These issues can be addressed by exploring various ways of making foreign aid more effective.

Making Foreign Aid More Effective

There are three important ways that countries around the globe can make foreign aid more effective.

  1. Improving Aid Quality: By dividing foreign aid into smaller projects, donor countries can control the volatility and lack of predictability of aid, thus significantly decreasing the deadweight loss of development assistance. In 2008 alone, deadweight losses from official aid amounted to $7 billion. Smaller projects, according to Brookings, can lead to further innovation and scaling up, thus offsetting deadweight losses.
  2. Linkage: In order for foreign aid to maximize its impacts in a developing country, it must be linked to other important development policies, namely trade, investment and migration. For example, in Haiti and Pakistan, countries in which the U.S. has a significant economic stake, trade restrictions on textile and garment imports prevent further growth.
  3. Mobilizing the Private Sector: It is generally accepted that in order to foster economic growth and development, countries must turn to the private sector. Unfortunately, foreign aid has yet to reflect that sentiment. In fact, much of it is still directed toward the public sector. Cities harbor the most economic growth yet receive only $1 to $2 billion in aid a year. Approximately one billion slum dwellers reside in the city centers of developing countries and represent the key to mobilizing economic growth.

At the end of the day, foreign aid aims to foster social and economic growth in developing countries by enfranchising governments, health care systems, education institutions and infrastructure. Consequently, growth in these developing nations helps developed nations by opening up new markets and increasing stability. When confronted with corruption or misuse or any of the other criticisms of foreign aid, governments should not slash foreign aid budgets, but rather should apply these three crucial ways of making foreign aid more effective.

– McAfee Sheehan
Photo: Flickr

ONE reports that international aid and foreign aid is confusing, and one of the key things to improving it is to make it clear and understandable. A suggested way to do this is that all donor countries need to work in unison to make sure that the definition and the measurement of official development assistance is communicated more effectively. ONE recently published a data report that showed this suggestion is actually not the best way to explain and improve aid, so the organization suggested 11 ways in which overseas aid can be improved.

  1. Redefine what aid is. According to ONE, 17 percent of total aid never left the donor countries between 2000 and 2012. There are a lot of things that can count as aid, including student costs and debt relief. These are important but shouldn’t necessarily count as official development assistance (ODA).
  2. Bring rules around loans up to date. An update to the criteria of what can count as loans is needed, because, currently, it is possible for donor countries to make money from ODA loans.
  3. Make sure countries only receive aid loans if they can afford repayments. Countries can become overwhelmed with repayment if they are at risk for further debt, and this can lead to increased poverty, which defeats the purpose of aid.
  4. All donor governments should step up and meet their aid commitments. Last year, aid increased by a small amount, but according to ONE, only 0.29 percent of gross national income is spent on aid.
  5. Donor countries should give 50 percent of their aid to the poorest countries. If this would have been done, in 2012 alone this aid would have given an additional $22 billion to the poorest countries.
  6. African governments need to improve their tax collection. People need to be responsible for their dues and prevent money from being lost to corruption. Governments need to crack down on how much tax is owed and how much is being paid.
  7. Donor countries should support public financial management. Government funding is often lost across Africa because of limited tax collection. ONE suggests that investing in public financial management systems will help build a better tax collection.
  8. Tax havens need to be opened. The role that donor countries play in keeping up tax havens is important and it entices illegal financial flows.
  9. African governments need to spend more on tackling poverty. The allocation of money for poverty reduction isn’t being met by a lot of African governments. Over the last few years, only six countries have given their promise of 15 percent being spent on health.
  10. Donors need to step up on aid transparency as they promised. Not all of the donors have signed up to publish the details of aid spending online, which was a requirement with The International Aid Transparency Initiative.
  11. African governments need to publish better budget data. The data that is currently posted is lacking a lot of information, which makes it hard to know what these governments are spending money on, how much they have to spend, and the results of what they are doing.

With these easy and attainable tweaks in the system, aid will be understandable and better utilized. If it is organized, we can see where the money is going and why, and if it can be better used somewhere else, it will be easy to see that and reallocate that aid. These steps will be essential moving into 2015 as our fight to end poverty continues.

Brooke Smith

Sources: ONE, OECD
Photo: Huffington Post