Project Approval Paralysis and Canada’s Declining Aid Spending

Canada’s media, opposition parties, and development community have all grappled with the questions of how much and why Canadian foreign aid funds were lapsed in the government’s 2012-2013 fiscal year.  Initial reports projected upwards of $800 million underspent.  Later figures suggest that the total amount lapsed was closer to $290 million.  With the end of FY2013-2014 just recently passed, we have yet to see whether another significant lapse of Canadian ODA has occurred. And still, we know very little about why Canada’s aid money went unspent last year.

This question of why Canada lapsed funds has continued relevance today. The OECD released its annual aid data this week showing that aid is at an all-time high and yet Canada’s aid contributions declined sharply in comparison to other leading donors (-11% from 2012 to 2013).  Reasons for this decline, linked certainly to the lapsed funds of 2012-2013, have been in short supply from the Government. The DAC report claims Canada justified its sharp drop in aid spending between 2012 and 2013 on extraordinary payments made in 2012 – simply the illusion of a cut.

In a November 2013 meeting of the Standing Committee on Foreign Affairs and International Development, Nadir Patel, Chief Financial Officer of DFATD suggested the lapse was due to lower than expected assessments from international organizations, but then admitted that it was money that could have been spent by the Agency. In the same meeting, opposition MP Paul Dewar asked Minister Baird why so few new project approvals of more than $25,000 were being authorized by DFATD in the beginning of 2013-2014, and the Minister responded: “We’re doing smaller ones.” This question of approvals – of how many, what size, and what type of projects were being approved in 2012-2013 by the former CIDA and its Ministers, has received insufficient attention when trying to better understand the lapsed funds and last year’s sharp drop in Canadian aid levels.

To examine this in more depth, the North-South Institute (NSI) and Engineers Without Borders (EWB) began analysis using the government’s own open data files on aid spending, as well as data compiled from DFATD’s Disclosure of Grants and Contributions over $25,000 to try and reveal a clearer picture of the 2012-2013 lapse and its link to project approvals and the annual cycle of government spending.  Aniket Bhushan (NSI) and James Haga (EWB) convened a workshop in Ottawa at the end of March to preview the results (see: here and here) of their analysis, a detailed report of which is presumably soon to be available from the North-South Institute.

After attending the NSI/EWB workshop in March, I was inspired to look into a series of related questions using the most recent DFATD open data files from January 31, 2014.  This data – part of recent government efforts to participate in international aid transparency initiatives – reflects all active approved aid  projects for DFATD and, more importantly, their date of approval and total amount of funds committed to the new project. In particular, I was interested in how project approvals differed in 2012-2013. How many projects were approved in contrast to the preceding fiscal years and how did they compare in size?

First, I looked at how many new projects were approved by CIDA in each fiscal year.  Figure 1 shows that FY2012-2013 was notable for a sharply reduced number of new project approvals.  According to DFATD’s open data, only 280 new projects were approved in 2012-2013, a sharp drop from the 461 approved the prior year.  This nearly 40% decline in the number of new project approvals is a telling figure when considering the lapsed funds that year.  Without a sufficient number of new programs coming online to replace those that are ending, any donor agency is going to have difficulty moving its allotted budget of aid funds.

Figure 1. New CIDA Project Approvals by Fiscal Year, 2008-2013



Figure 2. New CIDA Project Starts by Month, Fiscal Years 2009-2013


With far fewer projects approved than had been typical at CIDA, I looked next at the question of when during the fiscal year projects were being approved.  Anyone familiar with the spending cycle of the Government of Canada knows that a significant amount of funds are frequently spent in the waning days of the fiscal year.  At CIDA this was ever the case. It is not surprising that complex and challenging programs aimed at reducing poverty and supporting international development might run into hurdles when it comes to spending their estimated budget in a given year.  For this reason, an annual ritual of ‘March Madness’ at CIDA was always the reallocating of undisbursed funds to those programs and projects which were able to spend before the end of March. It was not surprising then that the DFATD open data files revealed a similar pattern.

In each of the past four fiscal years (and presumably for time immemorial), there have been large spikes in the approval of new projects in the final month of the fiscal year.  Figure 2 reveals this trend, but also shows how strikingly different 2012-2013 (and indeed 2011-2012) was from previous years.  In contrast to the nearly 200 new project approvals in March 2011, in March 2013, the Minister of International Cooperation only approved 104 new projects.  More telling is that throughout that rest of the fiscal year, then Ministers Oda and Fantino approved more than 20 projects in a month only once (April 2012).

Fewer projects were approved in total, as well as in the key ‘March Madness’ period at the end of fiscal year in 2012-2013.  This, in and of itself, is not sufficient to explain the lapse in funds, because had new projects being approved been of larger scope and budget than in past, approving fewer of them would not automatically reduce CIDA spending.  To examine this question of project size I analyzed data on the dollar amount of new project commitments in the DFATD data. Not only are fewer projects being approved, the funds committed by these projects is in sum and on average less than in prior fiscal years.  Though the total committed in March 2013 was still significant (nearly $900 million), the total committed throughout the year was far less than in prior years.  On average, a new project commitment at CIDA in 2012-2013 was approximately $6 million, while in 2010-2011 it was closer to $8 million.  Figures 3 and 4 show these differences both in monthly total commitments from new project approvals and monthly average commitments.  The message is clear: not only were fewer projects being approved, but on average they were smaller projects making use of less of Canada’s allocated aid budget.

Figure 3. Total New CIDA Project Funds Commitments by Month, Fiscal Years 2009-2013


Figure 4. Mean New CIDA Project Funds Commitments by Month, Fiscal Years 2009-2013


To put it simply, if the Minister does not approve new projects, and the projects that are approved are much smaller than has been typical of Canada’s aid program in recent years, then CIDA/DFATD will have great difficulty in spending its allocated budget.  The 2012-2013 lapses in aid spending seem to have mostly been due to a sharp drop in new project approvals at CIDA.  Why would such a reduction occur?  Some have argued that this was simply a means of cutting through inaction or stealth and freeing up Canadian aid funds to be returned to the Government coffers in aid of nothing more than deficit reduction.  No evidence points to a deliberate government effort to spend less than planned at CIDA for this express purpose.

The bigger question is more straightforward:  Why were the Ministers of International Cooperation in this period not approving new projects at the same rate?  Were there simply fewer projects for them to approve?  Rumored piles of approval memos sitting on the desks of Ministers Oda, Fantino, and now Paradis are legend within the Canadian aid community and at DFATD and suggest that it is not a matter of no new projects being offered for approval.

The rumored addition under the Harper Government (and continuation through today) of a “No Objection” approval step for CIDA’s Minister may be partially to blame for the lower levels of project approvals. Where previously Deputy Ministers and Assistant Deputy Ministers might have been permitted to approve projects and contributions up to a certain threshold, now DFATD aid officials cannot reportedly approve anything before receiving the “No objection” nod from the Minister’s office.  Could this extra “No Objection” requirement from the Minister be responsible for the paralysis of project approvals seen in 2012-2013?  Unfortunately the DFATD data cannot provide the answer to that question.

As taxpayers, some might applaud this savings or “frugality” as Minister Baird put it to the Standing Committee on Foreign Affairs and International Development on April 9, 2014, but many others will be left wondering why the government squandered the opportunity to use Canadians’ tax dollars to support development and fight poverty abroad, as they had been mandated to do.  Many of us would feel cheated if we donated to a charity for a specific cause only to learn later that the charity did not spend the money, returning it instead to its parent-organization’s general coffers because its executive director had been unwilling or unable to approve new programs.  Should Canadians feel any different about the exact same behavior within our national foreign aid agency?

This post originally appeared on the Ottawa Citizen Aid & Development Blog on 2014/04/12.