The Global Poverty Trap: Rising debt and falling aid

A new report, Putting Progress at Risk, shows that poor countries around the world are cutting back their spending on agriculture and health as a result of the global economic crisis. Despite their efforts to overcome the crisis by increasing their own revenue-raising efforts, less than 1 country in 5 is spending the recommended level on agriculture and only 2 of 5 are spending what the World Health Organisation recommends on health.

Although many had managed to increase spending in these areas and in others that benefit poor people such as education, this was funded by a large increase in borrowing. Fears about rising debt, combined with recent aid cuts mean they are now cutting back. Cuts to agriculture threaten to exacerbate an already dire situation – 1 in 8 of the world’s people will go hungry tonight. Reductions in health spending threaten to undermine recent progress in combating malaria and HIV/AIDS and reducing the number of children dying before their fifth birthday.

Judith Robertson  Head of OXFAM Scotland
Judith Robertson
Head of OXFAM Scotland
The report is based on data from a new Government Spending Watch database, a joint venture between Oxfam and Development Finance International (DFI) which monitors spending in 52 low income countries. It finds that poor countries lost $140bn in revenues due to the crisis – a situation compounded in the last two years by aid cuts. As a result, between 2008-13 40 per cent of their extra spending has been funded by borrowing, much of it expensive – for example off-budget private infrastructure finance initiatives and domestic and external commercial bonds.

Matthew Martin, Director of DFI, said: “Developing countries have made huge efforts to overcome the economic crisis and reach the Millennium Development Goals, but the international community has not been delivering on its promises.

“Without higher aid flows, countries are being forced to choose between sharply increasing debt burdens or sacrificing spending on food, hospitals and schools.”

Judith Robertson, Head of Oxfam Scotland, said: “The idea that developing countries have somehow come through the economic crisis unscathed is wishful thinking. Rising debt and falling aid are forcing poor countries to cut support to the poorest at a time when they need additional protection from climate change and rising food prices. Dismal levels of investment in agriculture is one of the main reasons why 1 in 8 people in the world are hungry – the evidence is that things may get worse before they get better.”

RwandaOxfam is one of almost 200 organisations which have joined together as the Enough Food For Everyone IF campaign to call for action to tackle hunger at this year’s G8.

The database tracks trends in poor countries’ expenditure on areas needed to reach the Millennium Development Goals: agriculture, education, environment, gender, health, social protection and water and sanitation. It measures spending against agreed international targets.

Fewer than a quarter of countries are spending what is needed to deliver education for all or to meet targets on water and sanitation.

Spending is also worryingly low on social protection to fight inequality, climate change and gender. Virtually no donors are funding poor country spending on climate change or social protection.

All of these have been identified as key to global development progress after the MDGs expire in 2015, by a UN High Level Panel considering successors to the MDGs, which is co-chaired by David Cameron.

Last year, the Scottish Government launched the world’s first Climate Justice Fund, £3m over 3 years to help some of the world’s poorest communities adapt to climate change. Oxfam welcomed the Climate Justice Fund, which it campaigned for, but has called on the Government to build on it with resources matching the International Development Fund, by the end of this Scottish Parliamentary term.