What's happening to aid to the Least Developed Countries?

New figures show an overall decline in aid to the world's Least Developed Countries, yet commitments made in Paris and the Addis Ababa Action Agenda call for more aid, not less.

 An Ethiopian government delegation learns about energy innovations in a climate smart village in Kenya. Ethiopia's government hopes to combine climate resilience with economic growth (Photo: CGIAR, Creative Commons via Flickr)

The final figures on aid from the OECD's Development Assistance Committee (DAC) for 2014 show a significant drop in aid to the Least Developed Countries (LDCs).

While total aid has risen slightly, aid from OECD countries to the LDCs dropped from just over US$45bn in 2013 to just under $41bn in 2014 (see table 31). The proportion of total OECD aid going to LDCs has dropped from 33 per cent in 2013 to 30 per cent in 2014.

The LDCs are a special category of poor countries that face special challenges, recognised by the United Nations in 1971. The criteria for inclusion are based on measures of national income, human development and economic vulnerability. There are currently 48 countries with LDC status.

Why have amounts fallen?

There has been speculation as to what lies behind the drop. Some commentators have singled out the increase in spending on the refugee crisis – both in terms of the increasing amounts of "aid" money spent inside developed countries on resettling refugees, and the increases in aid to countries such as Lebanon, which are taking huge numbers of refugees within the region.

The first point to pick up is that a large proportion of the 2014 drop is accounted for by a single country. Japan's aid to LDCs dropped by over $3bn between 2013 and 2014. This was due to a spike in Japanese aid to LDCs in 2013 caused by exceptional debt relief to Myanmar.

Smooth out the impact of that spike and it looks more like a trend of declining aid to LDCs rather than a sharp one-year movement.

Factoring in the refugee crisis

Without doubt the refugee crisis is a part of this trend. And the amounts spent on this in 2015 (and 2016) are likely to be much larger than for 2014.

DAC donors are increasingly seeing aid within a broader framework, reflecting national interest and mutual interest (confronting global challenges such as climate change and preventing epidemics) as well as solidarity with the global poor. The new UK Aid strategy is strong on these themes, and signals a shift in the UK's approach to targeting assistance at a much larger scale towards 'fragile states and regions' – which are to receive half of all aid.

Climate finance

A key dimension in future will be how public funding for climate finance is distributed. This is almost all counted as aid (Official Development Assistance) under DAC rules. For climate change mitigation a case can always be made for funding to be directed to relatively big emitters (large middle-income countries) where the biggest reductions in greenhouse gas emissions can be achieved. 

But meeting the scale of climate finance needed to support the LDCs to implement their climate action plans submitted to the Paris conference on climate change is a compelling priority. IIED analysis suggests that this can be estimated at $93.7bn per year between 2020 and 2030.  

LDCs should be the focus for public climate finance. Middle Income Countries will be far more able to attract private climate finance to support their mitigation programmes, and to raise tax revenues to support adaptation.

Reversing the trend

The Addis Ababa Action Agenda called for a reversal of the trend of declining aid to the LDCs. The Sustainable Development Goals (SDGs) lay out a demanding agenda for human progress across many dimensions, and ensuring aid flows to the poorest countries remain buoyant will be essential to delivering on these. The Paris Agreement (PDF) makes a number of references to the importance of funding climate action in LDCs.

Maintaining support across the SDG agenda, in areas such as social protection, health, water, sanitation and education will be critical for both development and climate resilience in the LDCs. Delivering on the Paris Agreement will require an increase in the scale of climate finance to LDCs.  

It is clear, therefore, that combined volumes of both development and climate finance to LDCs (however these flows are categorised) will need to increase through to 2030.

This increase will almost certainly require new approaches to increasing volumes of public climate finance in particular. A recent paper by the International Montary Fund (IMF) outlines directions for meeting this goal, which will also help to produce necessary reductions in greenhouse gas emissions through carbon taxes.

The paper estimates that a charge of $30 per ton of carbon dioxide (CO2) in advanced economies in 2014 would have raised about $25 billion for climate finance with seven per cent of revenues apportioned. Similar charges on international aviation and maritime emissions (about four per cent of global CO2 emissions) could raise a further $25 billion a year, even after compensation for developing countries.  

The IMF concludes that the challenges of implementation of the international transport taxes are considerable – but should be manageable.

The signal showing a decline in aid flows to the LDCs in 2014 is both a real cause for concern, and a call for urgent policy action.

Andrew Norton (andrew.norton@iied.org) is director of IIED.