Elizabeth Morgan | Development financing: Declining aid and trade – finding a way forward

THIS COLUMN has highlighted the UN Sustainable Development Goals (UN SDGs) adopted by all 193 UN member states in 2015 with the aim of achieving the 17 goals by 2030 to end poverty, protect the planet, and ensure all people enjoy peace and prosperity. An estimated US$5 trillion to US$7 trillion is needed annually to finance the goals, especially in developing countries. Financing was expected to come from overseas development assistance (ODA) and further liberalisation and expansion of international trade. With the COVID-19 pandemic and other global crises, including climate change, achieving these goals was already behind schedule for many developing countries, including those in the CARICOM region.

Since January 20, when the Trump administration assumed office in the USA, it was made clear that US policies would be changing in pursuit of its ‘America First’ agenda. The administration froze ODA for 90 days and demolished the US Agency for International Development (USAID). The matter of USAID was addressed in this column under the title ‘US the main beneficiary of its foreign aid’ on February 17. On trade, they announced that a protectionist, tariff-based, import substitution policy would be implemented to return investment and production to the USA. As known, the US has withdrawn from the UN Paris Climate Accord and the World Health Organization, and is reviewing its general participation in the UN system.

The news this week informed that the USA has rejected the UN SDGs. On Tuesday, March 4 it was reported that the US delegate in the UN General Assembly informed the session that the US now views the development agenda and SDGs as advancing a programme of “soft global governance” that is “adverse to the rights and interests of Americans”.

In addition, the Trump administration withdrew the US from the board of the UN climate damage fund aimed at helping developing nations cope with climate change disasters. So, the US, a major contributor of funding for development, is withdrawing resources at both the multilateral and bilateral levels.

DECLINING ODA

The target for ODA for developed countries, 0.7 per cent of gross national income (GNI), was established in the 1970s. Since then, the contributions have been erratic, with only a few countries in Europe meeting the target. The European Union (EU) collectively remained a stable source of ODA, especially for countries in the Organization of African, Caribbean and Pacific States, former colonies of EU member states who benefited from the European Development Fund (EDF). The EDF has been terminated, and aid financing is now from the EU’s general ODA allocation. Since the 1980s, the USA’s contribution has remained at about 0.2 per cent of GNI. ODA financing from other countries has declined, as these countries have faced economic challenges. The United Kingdom, having left the EU in 2020, signalled a reduction in ODA.

INCREASING MILITARY SPENDING

In 2023, the 31 members of the North Atlantic Treaty Organization (NATO) accounted for US$1.34 trillion, 55 per cent, of the world’s military expenditure. With it now becoming clear to NATO members that they can no longer depend on the USA for their security, countries are beginning to face the reality that they have to increase their security spending.

The UK has announced that it will be further reducing its ODA to 0.3 per cent and will be increasing defence spending. This is now likely to happen in other European countries and in Canada.

TRADE

The US Trump administration is moving from supporting trade liberalisation to a protectionist policy. It does not seem to have any great interest in free trade. Its tariffs policy, if fully implemented on a global scale, could lead to further global contraction and recession. The rate of growth is already slow in most developed countries. In fact, prior to January, the US economic performance was the best in the G7. From signals this week, the US economy may already be sensing coming stress.

The USA has also contributed significantly to crippling the dispute-settlement functions of the World Trade Organization. The administration is also ignoring the rules of the organisation.

The countries experiencing significant GDP growth are in the Global South. It is perhaps time to look seriously at intra- and inter-regional trade within the Global South. This has been proposed for years,but has not been realised effectively.

BILATERAL RELATIONS

As the US withdraws, limiting its engagement with the international community – especially at the multilateral level, and reducing funding – it is also discouraging countries, with threats of sanctions, from engaging with other partners, such as China and Cuba.

FINANCING FOR DEVELOPMENT

The Third International Conference on Financing for Development, held in Addis Ababa in July 2015, adopted the Addis Ababa Action Agenda. It is stated by the UN that it is a blueprint for actions by governments, international organisations, businesses, and civil society to increase the financial resources available to align financing flows with policy priorities of the UN SDGs. Since 2015, it has proven difficult to realise the financing targets.

The Fourth International Conference on Financing for Development is to be held in Spain in June-July this year. The country representatives to this conference will be grappling with the new US policies, declining aid, and restrictions on trade. The other 192 UN members, who want to, will need to explore creative ways of financing the UN SDGs.

The current situation is a wake-up call for all countries, especially those in the Global South. It is time to examine internal systems, looking at what can be done by themselves, and aim to build and strengthen partnerships, regardless of the obstacles put before them. Countries, including those in CARICOM, need to find a way forward in this new scenario and not be paralysed by fear.

“So, first of all, let me assert my firm belief that the only thing we have to fear is ... fear itself – nameless, unreasoning, unjustified terror which paralyses needed efforts to convert retreat into advance.” – US President Franklyn Delano Roosevelt, First Inaugural address, March 4, 1933

Elizabeth Morgan is a specialist in international trade policy and international politics. Send feedback to columns@gleanerjm.com.