Forum for Trade and Development

Devex reporter Molly Anders recently reported on the impact of the UK’s economy on the aid budget:

UK aid braced for $1 billion shortfall

The United Kingdom’s economy is not growing as quickly as previously thought, U.K. Chancellor of the Exchequer George Osborne revealed Wednesday. Original estimates by the Office for Budget Responsibility in November projected an average of 0.6 percent growth in gross domestic product over the next four years, now halved to 0.3 percent.

As a result, the country’s aid budget, estimated in November at $23.4 billion for 2019-2020, will be about 650 million pounds ($932 million) less than expected.

Unveiling his latest budget, Osborne told members of Parliament: “I am proud to be part of the government that was the first to honor Britain’s commitment to spend 0.7 percent of national income on development. We won’t spend more than that, so the budget will be readjusted saving 650 million pounds in 2019-2020.”

The U.K. is the only country in the Group of Seven to commit to the United Nations 40-year target of committing 0.7 percent of gross national income to international development.

“This is just a pitfall of having an aid budget tied to GNI,” said Amy Dodd, head of the U.K. Aid Network. “It’s subject to the estimates by the OBR and changes with the economy.”

A U.K. Department for International Development spokesperson told Devex it is not yet known which part of the aid budget will be cut, or indeed whether the cuts will come from DfID or one of the other government departments that now allocate aid, following the U.K.’s new cross-government aid strategy in November 2015.

“Decisions on which department [official development assistance] budgets to reduce will be taken in due course,” the government spokesperson said.

In previous years, Dodd added, DfID drew on unofficial contingency funds, including unprogrammed aid from the previous fiscal year, or emergency crisis funds to cover gaps in economic projections.

She added that DfID’s aid pipeline, despite being tethered to GNI, has become “quite versatile” faced with shifting economic growth. The fact that the reduction applies only to the 2019-2020 budget also provides DfID with maximum flexibility to make adjustments, given the economic outlook will continue to change for better or worse.

Dodd added that one concern is that commitments the U.K. made between those initial economic projections and now may have been overly ambitious and could be scaled back, namely the U.K.’s contribution of 5.8 billion pounds to climate finance after the Paris climate conference and its $10 billion pledge for the 2016-2020 period at the Syria donors conference in February.

However, the spokesperson confirmed that these pledges are not under review at this time.

The U.K. government’s recent aid strategy outlined several key shifts in aid spending, namely the commitment to spend 50 percent of all ODA in fragile and conflict-affected states, and the decision to increase ODA spending by non-DfID departments, including the Foreign and Commonwealth Office and the Ministry of Defense, to 27 percent of the total aid budget.