Canada’s Aid Budget: Doing less with less

“Protect the aid budget!”  This is the call to action in the recent  online petition and campaign from a group of concerned organizations including some of Canada’s most vibrant development, anti-poverty, and youth engagement groups.  By February 6th  –with less than a week to go until the federal government tables the 2014 budget – more than 20,000 Canadians signed on to support the message that Canada should stop cutting its foreign aid budget.  The petition argues to preserve aid spending to preserve Canada’s international reputation and to ensure our aid can do more to support development – more vaccinations, healthier mothers and newborns, and more poverty reduction for those most in need.  Sadly, their call is likely to go unheeded.

Next week’s 2014 budget will again cut federal spending in order to meet the federal government’s balanced budget target for 2015 – just in time for the next federal election. In the face of across-the-board cuts, the prospects for ring-fencing Canada’s aid budget and protecting it from further erosion are limited.  This is not to say ring-fencing has not worked elsewhere.  The UK, for instance, has pursued exactly this strategy under the present coalition government, even increasing aid budgets during period of fiscal constraint.

In contrast, with freezes to aid spending in the 2010 and 2011 budgets, and cuts in both 2012 and 2013, Canada has done little to protect the aid budget.  Indeed, beyond the projected cuts to the aid budget in 2012-2013 of nearly 7.5%, the reported lapsing of hundreds of millions of additional aid funds may have sharply reduced Canada’s aid budget more rapidly than expected.

Reversing this course for the aid budget, or even halting its downward tick, is going to be a challenge in 2014. By any of the usual internationally comparable metrics of aid spending (aid as percent of national income or the total volume of aid spending in US dollars), Canada will be hard-pressed not to show a marked decline in its aid spending this year.

First, even if Canada’s aid spending unexpectedly remains at current levels, the economy is projected by the IMF to grow at about 2.2% this year.  This means that any cut to actual aid spending levels will be reflected in an even greater reduction in aid spending as a percent of national income.  Leaving aid spending at current levels will still look like a cut on this metric.

Likewise, if the recent sharp decline of the Canadian dollar against its American counterpart persists through 2014-2015, we are bound to see yet lower levels of aid spending when converted to USD figures by the number-crunchers at the Organization for Economic Cooperation and Development (OECD).  It is the OECD that acts as the global clearinghouse for official aid spending, and they track these figures in USD. To put the potential exchange rate effect in context: when Budget 2013 was released on March 21 last year, the exchange rate was about $1.025 CAD per USD; this week, on February 4th – a week ahead of Budget 2014 – this rate stands at about $1.11 CAD per USD.   What effect will this 8% decline in the Canadian dollar have on the aid budget?  Beyond reducing the amount the OECD tallies at the end of the year, it also means our aid budget will be stretched thinner than anticipated.  Any foreign currency costs in USD will require more of the already diminished budget: our aid dollars will buy us less.

On top of economic growth and exchange rate challenges, it remains to be seen how the merger of CIDA and DFAIT will affect our ODA spending this year.  Less than a year into the merger process, many questions remain about the actual costs of the merger.  No figure has been released by the government estimating what it costs to forcibly unite two disparate departments and address the various growing pains that result.  Beyond those costs, it is a safe bet that the merger itself will have slowed Canada’s aid spending.  It is difficult to plan new programs and move aid money out the door if you are unsure who your boss is or whether that is, in fact, your door anymore.  In this way, the merger will likely lead more lapsed funds from the aid budget – a boon to Tory deficit cutting, but a cut to the aid budget by any other means.  Only time will tell what effect the merger has on aid spending now or in the future, but it is a question to which the foreign policy and aid communities in Canada should pay close attention.

Canadians are supportive of aid spending.  The 20,000 signing the petition to protect aid spending are not alone.  In fact, before the cuts began, a 2010 Environics poll showed that more than half (54%) of Canadians polled reported they believed Canada’s aid spending to be “just right” while an additional 24% reported that Canada spent “not enough.”  Still, the minority viewpoint has been indulged by recent budgets.

Aid has not been protected.  The coalition of groups behind the petition and its 20,000 supporters are deservedly concerned. In the face of deficit cutting, continued economic growth, unfavorable exchange rates, and the unknown effects of the merger, even maintaining the status quo will be difficult. In next week’s budget, I fear aid spending will again be the target of cutbacks. Only an about-face at the political level could avoid this and that seems unfathomable with the current government.  Rather than doing more for development and protecting the aid budget, it seems the new mantra for Canadian foreign aid is: do less with less.

This post originally appeared on the Ottawa Citizen Aid & Development Blog on 2014/02/06.