Canada Balancing Budget on Backs of World’s Poorest

This piece originally appeared as a guest post on the McLeod Group’s blog:

The latest foreign aid numbers were released on April 8. Globally, aid remains at near record high levels (US$135 billion). This is good news for the global fight against poverty. The numbers tell a rather depressing story, however, if you are Canadian. In the past two years, Canada’s aid to the world’s poorer countries has declined by over US$1 billion, a more than 20% decrease since 2012. This sharp decline is among the largest of all the wealthy donor countries and comes in a year when Canada’s government had already committed in its 2014 budget to hold its aid commitments steady.

Broken budget promises are not new, but in further cutting Canadian foreign aid, the Harper government is literally looking to balance the budget on the backs of the world’s poorest. Lapsed spending in previous years, combined with two years cuts of more than 10%, means that Canada’s real dollar aid spending is at its lowest levels since 2005. These declines are explained by the OECD as being: “due to the timing of certain contributions to international organizations and planned cuts in aid as budget saving measures.”

It is these “budget saving measures” that are enabling the Harper government to shirk Canada’s international responsibilities to fight poverty in order to balance the newly released 2015 budget and fund Conservative party election promises, such as the controversial income-splitting tax policy. With an estimated cost of $2.2 billion, the income-splitting program is expected to benefit only 15% of Canadian households and disproportionately aid middle- and high-income earners. In this respect, nearly half the cost of Harper’s income-splitting policy can be seen to be funded by cuts to Canada’s foreign aid.

Some will respond to this assessment by saying that it does not matter how much aid we spend as long as we spend it well. Indeed, Bill Gates’ whirlwind visit to Ottawa in February saw Canada lauded for its leadership of recent global efforts to promote maternal and child health through its aid program. Canada and the Prime Minister personally have garnered recent acclaim for these efforts, but at the same time Canada should be called out for its flagging overall commitment to international development.

Canada has never seriously pursued the UN’s aid target of 0.7% of gross national income. The fact that 2014 tally indicates Canada spent only 0.24% of GNI on aid is testament to this failing. Further, Canada continues to fall short of the secondary target of providing 0.15% of GNI to the world’s poorest countries (Least-Developed Countries). Many would argue that committing to arbitrary global targets such as these, especially in lean economic times, makes little sense. Yet, the United Kingdom has done exactly that. In an era of British austerity, the Cameron government committed to sharp increases in UK aid spending and indeed recently passed legislation making it mandatory for future governments to spend to at least 0.7% of GNI on aid. This is what political will to support global development looks like. In Canada, we instead see paper thin political will intended to score easy points by championing one global development challenge at the same time as drastically cutting our already miserly aid commitments.

The new Federal budget, released on April 21, paid little attention to aid levels. Instead, much is being made by the Harper government of its shrewd economic management to arrive at a balanced budget and to deliver on election promises like income splitting.

Canadians should have no illusions about how we will have arrived at that point: The budget has been balanced, at least in part, on the backs of the world’s poorest. Balanced budgets and boutique tax-cuts like income splitting might help win votes for the Conservative party and put money in the pockets of some of Canada’s wealthier households, but at a steep price when it comes to Canada’s foreign aid commitments and reputation. We should all ask if this is a price we are willing to keep paying: Is a balanced budget at the expense of Canada doing its part in addressing key global challenges in our longer-term self-interest? Surely not. Canadians deserve generous and visionary commitment to global development that safeguards these interests. Instead, we get penny-pinching and shortsighted political opportunism at the expense of continued global poverty and inequality.

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.


A Remarkable Year for Canadian Foreign Aid

It is beyond clichéd to reflect back on the year just past when we reach the tail end of December.  In most years, Canada’s foreign aid programs would not merit the attention of a year-end review; however, looking back on 2013, such reflection seems warranted.  After all, we have gone from being up in arms about swanky hotels and $16 orange juice to eliminating Canada’s aid agency altogether.  Indeed, it was a year encompassing deep cuts, an ill-planned merger, naked commercial self-interest, and a worsening lack of vision for how Canada can best contribute to global development.  For all these reasons and despite the cliché, I want to take stock of what made 2013 such a remarkable and disappointing year for Canadian foreign aid.

Let’s start with the cuts. It was not long into 2013 that it became clear that announced budget cuts to Canada’s aid program were going to be deeper than anticipated.  Aside from announced cuts of 7.5 percent to the aid program in the 2012 budget, reports surfaced that CIDA was going to lapse hundreds of millions of aid dollars during the 2012-2013 fiscal year. Described as “cutting through inaction”, “cutting by other means”, or “massive cuts without any transparency” by various aid experts, the previously budgeted aid funds projected to lapse in FY2013 implied a much more significant funding cut to Canada’s aid than expected.  By November 2013, updated reports suggested that about $300 million had been lapsed in this manner, representing almost 10 percent of the CIDA aid budget in 2012-2013.

The lapsed funding issue is of concern because it reflects the loss of Canadian contribution to combating poverty, promoting human rights, and generally contributing to development internationally.  By not approving new initiatives, allowing proposed programs to pile up on the Minister’s desk, CIDA ended up doing less than was budgeted.  To some, this simply sounds like a cost savings.  To others, it looks like children missing vaccinations, less clean water for communities, or fewer girls in schools.  Had a domestically-focused social program simply decided not to spend nearly 10 percent of its budget in a given year over and above existing cutbacks without any public consultation, heads would roll.  Yet, because it was only foreign aid funding, a few development experts and reporters took notice, and the cuts continued.  The fact that the year-on-year cut to spending at CIDA from FY2012 to FY2013 was closer to 12 percent – nearly $500 million – suggests the strategy of cutting through other means was sadly efficient.

In retrospect, these deep cuts to CIDA foreshadowed that the Agency’s days were numbered.  It was not much further into 2013 that we learned about the merger of CIDA and DFAIT into the new Department of Foreign Affairs, Trade, and Development (DFATD).  With little notice to senior CIDA management, and seemingly less advanced planning about how the merger would play out, the government announced its plans to remodel how Canada’s diplomacy, trade, and development efforts would look moving forward.  Rather than a relatively autonomous and specialized aid agency like it had since 1968, Canada’s aid will now be delivered by various pieces of an unwieldy DFATD, with the Minister for International Development simply one of three within the new mega-department.  The merger was announced with accolades for how it would make Canadian aid more efficient, more coherent, and more in keeping with Canadian interests.  With a new Minister and Deputy Minister for International Development appointed soon after the amalgamation, the dust has yet to settle on the merger almost six months since DFATD was created in law.  Only a few leaks of information have shed any light on how the merger has proceeded (or stalled) to this point – including the controversial appointment of a Canadian mining industry CEO to the “External Advisory Group” working to shape the new department’s vision and structure.  What is clear is that the integration of the aid function into a common department with trade and diplomacy has spelled out the direction in which the current government is steering our aid efforts: towards Canadian self-interest.

Aside from the use of aid to achieve diplomatic objectives (sharp focused upticks and subsequent reductions in aid to Afghanistan, Iraq, or Pakistan in the past decade when it was deemed politically expedient to achieve Canadian security objectives), we have also seen Canadian aid used in the past to bolster our trade and investment interests. The difference in the current context is how explicit this naked commercial self-interest has become.  Apart from the much maligned NGO/private sector pilot initiatives featuring three Canadian mining sector heavyweights (Rio Tinto Alcan, Barrick Gold, and IAMGOLD) under the guise of supporting greater corporate social responsibility, we have since witnessed a sharp turn towards Canadian aid being used as a tool to promote our commercial interests abroad.  The November 2013 release of the Global Markets Action Plan as a new direction for ‘economic diplomacy’ in Canadian foreign policy cements this aid-trade linkage further arguing that DFATD will “leverage development programming to advance Canada’s trade interests” (p. 14).  Aiming to use aid as just another tool to promote our own commercial gain, it is not surprising that CIDA was disappeared so rapidly following the merger.

There are no reasons why our aid cannot support benefits for Canada.  The entire notion of enlightened self-interest in the developing assistance context suggests that donor countries also benefit from fighting poverty and promoting peace and security elsewhere.  Still, the blatant linking of our aid programs to directly building Canada’s trade and investment profits goes far beyond this and smacks of a new era of ‘tied aid’ where the donor benefits just as much or more so than the aid recipient.  If under this new economic diplomacy aid becomes more about ensuring that Canadian private sector firms have better access to world markets than it is about fighting poverty globally, then Canadians will lose no matter the profits or jobs that come to us because of increased trade.

With the deeper than expected cuts, the ill-planned merger, and the commercial self-interest that has emerged as the new core of Canada’s foreign policy, 2013 was truly remarkable in terms of the evolution of our foreign aid programs.  Only a few short years ago, Canadian aid was trending upwards in both absolute and relative terms, Canada had a standalone aid agency with a strong legal mandate derived from the ODA Accountability Act, and commercial interests were at the periphery rather than the core of our aid policy.

As 2013 draws to a close, those among us with firm belief that Canada has the potential, and indeed the duty, to do more to promote development globally must surely be disappointed by the developments of the past twelve months.  The most disappointing fact about it all is that – for once – aid is receiving significant government and public attention, as many dollars and more hours are spent trying to mold the existing aid program into something new.  Yet, despite all these efforts, the results appear quite bleak.

Aid critics and supporters of the merger may disagree, but rather than an aid program to take pride in – governed by principles of accountability, transparency, and rigor – Canadians now find themselves having to stomach an approach to aid and development driven by ad hoc planning, Ministerial whim, and blatant self-interest.   2013 has, indeed, been a remarkable year as far as Canadian foreign aid is concerned.  It is hard to imagine that 2014 could bring more momentous developments in this respect, but then again, at the end of 2012 we were still recovering from the shock of $16 orange juice.

This post originally appeared on the Ottawa Citizen Aid & Development Blog on 2013/12/27.