Innovative finance allows France to offset reduction in aid budget

The French Budget for 2014 was presented this week by Pierre Moscovici, Minister of Economy and Finance. The 2014 budget aims to address the national deficit and includes cuts across several departments. Development aid experiences a cut of almost 6% compared to the 2013 budget, from 3.1 billion Euros to 2.9 billion Euros in payment appropriations (allocated budgets). In 2014, France will aim to improve aid effectiveness through “rationalisation and greater concentration of aid instruments”, which includes a cut of 143 million Euros on multilateral contributions.

France provided 0.46% of GNI as Official Development Assistance (ODA) in 2012 (as we noted in our Investments to End Poverty report: France donor profile, p.168).The 2014 budget makes it unlikely that France will meet its commitment to provide 0.7% of GNI as ODA by 2015, despite calls on the same day from the United Nations’ 68th General Assembly for states to accelerate progress towards the target.

The budget does allow France to meet President Hollande’s commitment earlier this year to double the share of aid channelled through NGOs, which translates to an additional 9 million Euros per year and an additional 1 million Euros for the French humanitarian emergency fund. France is one of the DAC donors channelling the lowest share of its aid through NGOs: 1% in 2011 compared to 17% for total DAC ODA. This measure goes some way towards addressing a long-standing request from the French NGO community.

Aid cuts are partly offset by France’s innovative sources of finance

Some of the aid cuts are compensated by increased revenue from innovative financial sources, such that the overall reduction in the 2014 budget is 2.4%. Innovative finance is defined as either an innovative source or an innovative use of finance, and includes a mix of official development assistance, private development assistance and commercial flows (Investments to End Poverty, Innovative Finance, p.138).

France innovative financeFrance is leading the way on innovative finance, contributing 38% of total innovative finance in 2012. The 2014 budget reaffirms the importance of these sources of finance for France’s aid programme:

  1. Firstly, the solidarity contribution levied on airline tickets, which applies to all tickets out of France, is increased to 12.7%, providing an extra 210 million Euros to the “Social Solidarity Fund” (Fonds social de solidarité) managed by AFD, the French Development Agency.
  2. Secondly, the share of revenue from France’s financial transactions tax allocated to development aid increased from 10% to 15%. These two measures will be used to keep France’s commitments to the Global Fund to Fight Aids, Tuberculosis and Malaria, and to contribute to the new Green Climate Fund.

Aid transparency boosted

France is also boosting its commitment to transparency. France has begun piloting geo-coded reporting on aid to Mali. Further reporting of aid data aligned to the International Aid Transparency Initiative (IATI) standard is expected in 2014. Greater openness and data availability, called for by our report Investments to End Poverty, are to be welcomed.