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Declining ODA, Resilient Remittances

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Numbers just published by the Organization for Economic cooperation and Development (OECD) show that major donors’ aid to developing countries, known as Official Development Assistance or ODA, fell by nearly 3% to 133.5 billion in 2011 compared to 2010, the first drop since 1997 when debt relief figures are not included (see charts below).  Bilateral aid to sub-Saharan Africa was USD 28.0 billion, representing a fall of -0.9% compared to 2010. By contrast, aid to the African continent increased by +0.9% to USD 31.4 billion, as donors provided more aid to North Africa after the revolutions in the region. The group of Least Developed Countries (LDCs) also saw a fall in net bilateral ODA flows to USD 27.7 billion. (Click here to see the OECD report)



OECD-DAC survey of donors point to an increase of 6% in country programmable aid (CPA) in 2012, and a stagnation from 2013 forward. In addition, recent comments by U.S. republican presidential candidates suggest major cuts in U.S. (the largest donor in absolute terms) foreign aid should a republican occupy the White House.  The continuing debt crisis, high unemployment, and slow growth in Europe are all contributing to bleak future of foreign aid.

As a complement of foreign aid, the question in the minds of many followers of remittances is whether growth in global flows of remittances could help offset declines in foreign aid. According to figures from the World Bank, remittance flows to developing countries are estimated to be $351 billion in 2011, an increase of 8 percent from 2010. Growth of remittance flows to developing countries is also expected to continue at a rate of over 7 percent annually from 2012 to 2014. This is good news for many developing countries because remittances were resilient during the global financial crisis even though other resource flows such as foreign direct investment declined significantly.  Although remittances may not be a straight alternative for foreign aid (Click here for an interesting BBC program on this topic), it can continue to serve as a complement by serving as a significant source of household income, providing support for consumption, education, healthcare, and potentially a path out of poverty.



C. Omar Kebbeh

Economist, Balance of Payments Division, U.S. Bureau of Economic Analysis (BEA)

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