Foreign Aid Study Posits Path to Ending Extreme Poverty

By Samuel Oakford Reprint | | Print |

UNITED NATIONS, Sep 23 2013 (IPS) - The number of people living in extreme poverty, subsisting on 1.25 dollars a day or less, has fallen from 43 percent of the world’s population in 1990 to 21% percent today. A new report on foreign aid and investment makes the case for a figure of zero by 2030.

“Investments to End Poverty,” released by Development Initiatives, compiled the aid patterns of donor countries and recipients. The report argues that breaking down the different sources of aid and measuring their efficacy is vital if countries are to truly wipe out extreme poverty.

The study shows that that no one source of aid will suffice, said Judith Randel, executive director of Development Initiatives.

“If we are going to end extreme poverty by 2030, government expenditure will have to be supplemented by other resources,” Randel told reporters.

Aid figures in the developing world can be misleading.

In the Democratic Republic of the Congo (DRC), for instance, nearly seventy percent of the 7.5 billion dollars in official development assistance (ODA) received in 2011 was in the form of debt relief.  That money, given long ago, likely has little or no effect on the DRC of today.

In Ethiopia, debt forgiveness made up less than one percent of the 5.1 billion dollars in ODA. Cash and food grants, new loans and equity investments made up more than three quarters of aid inflows.

When deciding how to allocate funds, donors are faced more than ever with the decision to “invest in something with a known rate of return or something more risky,” said Randel.

Cash transfers, which provide direct monetary assistance to poor families, are viewed as a way to circumvent bureaucracy and empower recipients.

“They have to be seen as part and parcel of the development compact” said Charles Lwanga-Ntale, Africa director at Development Initiative.

In East Africa, the majority of recipients spend cash transfers on education, healthcare and in small investments like livestock. From a development perspective, that kind of spending is precisely what donors look for, Lwanga-Ntale told IPS.

Despite their success, cash transfers can’t fill in gaps in infrastructure. If there is no school or doctor, people can’t spend money on healthcare and education. Traditional forms of aid and direct foreign investment are as important as ever for poorer countries.

“There is no one size fits all approach to ending extreme poverty”, the report concludes.