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  • 1 July 2021

Covid-19 and targeting ODA to poverty

Can Covid-19 be a call to improve ODA targeting towards people in greatest poverty?

Written by Maria Ana Jalles d’Orey

Development Finance Lead

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DI is currently researching how effective targeting of ODA can play a role in ensuring a sustainable and equitable pandemic recovery, with several papers due to be published later this year.

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The effects of the pandemic are driving up poverty particularly in the most environmentally, politically and economically challenged countries.

We are seeing years of progress reversed. At least 100 million people were pushed back into poverty last year and 20 million were pushed below bare minimum subsistence levels (our current research is showing). Almost all people living in extreme poverty in fragile countries are in places identified as being at either high or very high risk from the impacts of the Covid-19 pandemic. Covid-19 has increased food insecurity, something that disproportionately impacts people living in poverty and is driving greater humanitarian needs. Development Initiatives (DI)’s Global Humanitarian Assistance Report 2021 launched last week shows that, in regions where there is a food crisis, emergency or famine, 82% of the population live below the international poverty line ($3.20 a day).

On top of this, people living in greatest poverty are yet to benefit from full access to vaccination in 2021.

Despite promises to increase vaccine supply more globally, the G7 made limited progress this year, committing only 1 billion vaccine doses to low- and middle-income countries. And while it is positive that some countries such as the UK and US have pledged to donate more than 100 million and 500 million doses respectively before the end of 2022, larger volumes and greater speed of vaccination are needed to ensure an equitable distribution across all countries. It is estimated that by the next G7 summit only 10.3% of the population in low- and middle-income countries would be vaccinated under the current deal.

Furthermore, people living in countries experiencing protracted crisis, have an average single-dose vaccination rate of 2.4%, 10 times lower than other developing countries. With the number of countries experiencing long-term protracted crisis doubling to 34 in the last six years, this represents a very worrying trend in vaccine coverage for countries which are particularly vulnerable to the impacts of Covid-19.

The pandemic has underlined and strengthened the critical role of official development assistance (ODA) in sustainably building the resilience of people living in greatest poverty.

There is a shared, global responsibility to ensure that the recovery from the pandemic is both sustainable and equitable – which goes beyond vaccine supply. However, if we want to halt and reverse the growing gap between people living in greatest poverty and the rest of society, recovery needs to be more than equitable – it must disproportionately prioritise the people in greatest poverty. While a considerable body of evidence already exists on what works, this knowledge is not always being transformed into action.

ODA is not reaching the poorest places or people in greatest poverty. DI’s current research shows that while ODA raised to an all-time high of US$161 billion in 2020 and is projected to increase by 4% between 2019 and 2021 in an upside scenario, support to the poorest countries has grown relatively slower than ODA to developing countries as a whole. Since 2010, aid to fragile states and the least developed countries (LDCs) grew 17% and 16% respectively, while total aid grew by 24%.

While domestic resources are the most important source of finance to support long-term development and will be vital to supporting recovery in all countries, the poorest countries face very significant financing challenges. In LDCs where extreme poverty is increasingly concentrated, for instance, non-grant government revenues were US$150 per person in 2019, compared with US$14,820 in high-income countries. The gap between the domestic resources of LDCs and other developing countries was also significant – US$152 billion in 2019 in LDCs compared to US$7.5 trillion in other developing countries. DI’s current research projects this divergence will continue post pandemic – by 2025, that difference in resources could have grown to over US$9 trillion.

The low vaccine coverage in the poorest places will further impede the recovery of other major international flows to these countries, which are already low and projected to decline substantially in 2021. In LDCs, for example, the cumulative decrease of foreign direct investment, remittances and tourism flows between 2019 and 2021 is US$51 billion – which is greater than ODA levels in 2019 and projected levels in 2021, of US$47 billion and US$44 billion respectively.

ODA allocation needs to shift dramatically to the places and sectors that disproportionately benefit the people in greatest poverty to ensure sustainable and equitable pandemic recovery.

ODA is the largest source of external financing for LDCs. In these countries, where poverty is deepest and domestic resources lowest, aid supports investments in key sectors for poverty reduction such as agriculture, education, social services, health digitalisation and water, sanitation and hygiene. These sectors remain central to an equitable pandemic recovery agenda that strengthens the resilience of people living in greatest poverty. However, ODA to these critical areas has remained a relatively smaller proportion of total ODA to LDCs: less than half. In health and education, countries with the lowest government resources receive less ODA per person in poverty than other countries – and LDCs make up most of these. Around three quarters of LDCs received less than the developing country median of ODA per person in poverty in 2019 for education (US$36) and health (US$41) (DI’s current research).

Similarly, ODA has a critical role to play as the key public international resource directed towards climate adaptation in countries that are especially vulnerable to the impacts of climate change. And while the G7 reaffirmed the promise to raise contributions to meet the target of $100 billion a year in climate finance to poorer countries, including increased contributions to climate adaptation, this target still falls short of what is needed and where. Previous analysis by DI shows that adaptation finance remains small compared to mitigation, and that it doesn’t always go where it is most needed. In fact, fragile countries with the highest vulnerability to climate change and the lowest domestic revenues to build capacity for response receive some of the lowest volumes of adaptation finance.

The data and evidence clearly support concerns about the Covid-19 pandemic driving and accelerating the ‘Great Divergence’, pushing the world further off track in meeting the Sustainable Development Goals. Despite welcome improvements and increases in financing from some actors, concerning trends continue to see funding at levels below what is needed. While there is substantial variation between actors, allocation of resources also continues to be less correlated to need – despite more acute challenges in contexts where poverty is increasingly concentrated.

As governments prepare for the High-level Political Forum this month, to consider progress on the Sustainable Development Goals, it’s clear that Covid-19 has disproportionately affected the poorest people and the poorest countries, who are falling even further behind. The pandemic response has demonstrated the need for greater public investment for a sustainable and equitable recovery. The way in which global mechanisms support national and international needs and priorities is on the edge of evolution with efforts underway to re-imagine the architecture and objectives of Global Public Investment. However, in the interim, ODA remains critical to the poverty-reduction agenda. There is a real opportunity for donors to step up their ODA contributions, particularly in countries and sectors that disproportionally benefit people in greatest poverty and where ODA has comparative advantage over other types of resources. The moment for ODA to have a more meaningful impact is now.