Australia is the 13^th-largest donor; ODA is at its lowest level since 2010

According to OECD data, Australia’s net ODA was US$3.3 billion in 2016 (in 2016 prices), making it the thirteenth-largest DAC donor. Net ODA decreased by 5% compared to 2015. Cutting the ODA budget has become one of the biggest sources of savings required to meet austerity measures; ODA has been declining consistently since 2012. ODA as a percentage of GNI is expected to have declined from 0.27% in 2016 to 0.22% in 2017. In overall terms, net ODA will have decreased by 24% between 2012 and 2018, according to the latest budget for FY2017-18.

The Liberal National Coalition assumed office in 2013 and has since announced multiple ODA budget cuts. The largest single cut in Australia’s development budget history came between FY 2014-15 and FY2015-16, decreasing from A$5 billion (US$3.7 billion) to A$4 billion (US$3.0 billion). The FY2016-17 ODA budget saw a further decrease to A$3.8 billion (US$2.8 billion).

In July 2016, the Liberal National Coalition won the federal election, narrowly defeating the Labor Party to maintain majority control. The Australian Treasurer delivered the FY2017-18 budget in May 2017. This budget maintains a cap on ODA at A$3.9 billion (US$2.9 billion), allowing an increase only for inflation. From 2019 to 2021, however, the government is also freezing increases in line with inflation that would maintain the real value of ODA.  This will result in an additional projected cut of about A$303 million (US$225 million). ODA has decreased from 0.36% of GNI in 2012 to 0.27% in 2016 and is expected to drop further in the coming years. This share of net ODA in 2016 ranks Australia the 17^th-largest donor relative to its GNI.

Loan repayments, which make up the difference between net and gross ODA, and include offsetting entries for debt relief, accounted for less than 1% of the gross ODA budget between 2014 and 2016.

Focus on promoting national interest and ‘aid for trade’

Australia’s development policy was last updated in 2014 following a change in government. The policy, called ‘Australian aid: promoting prosperity, reducing poverty, enhancing stability’, outlines objectives and priorities. According to the strategy, the purpose of Australia’s development program is to “promote national interests by contributing to sustainable economic growth and poverty reduction” with a strengthened focus on the Indo-Pacific region. In the ministerial foreword, Minister for Foreign Affairs Julie Bishop states that the Australian “aid program is not charity; it represents an investment in the future of the Indo-Pacific region,” complementing its diplomatic and security efforts to promote regional stability.

The policy is accompanied by a performance framework, ‘Making Performance Count: enhancing the accountability and effectiveness of Australian aid’, with which the government aims to increase the effectiveness of its development program and incorporate “rigorous benchmarks and mutual accountability”. Australia intends to tailor investments to the country context and according to its national interest in the six priority areas: 1) infrastructure and trade; 2) agriculture, fisheries, and water; 3) effective governance; 4) education and health; 5) building resilience; and 6) gender equality and empowering women and girls.

Australia’s key development priorities:

• Indo-Pacific: Australia continues to focus its funding on neighboring countries in the Indo-Pacific region (91% of geography-specific bilateral funding in 2016), reflecting Australia’s emphasis on promoting regional trade development through aid.
• Health research and development and emergency response: Australia has announced new financing outside the foreign affairs budget for health research and development and emergency-response research.
• Gender equality: Australia’s new performance framework requires that 80% of its ODA investment “effectively addresses” gender equality issues.

This strategy is driven by the conviction that public financing represents an ever-diminishing proportion of financing for global development. As such, Australia’s development strategy documents focus on drivers of growth and development and on strengthening already‑established development partnerships. The country’s efforts to improve development effectiveness and efficiency are centered on concepts such as transparency, value for money, fraud and anti-corruption, risk and safeguards, consolidation, and the choice of effective partners. These trends of development are amplified in Australia’s region due to the accelerating shift of global economic power to the Indo-Pacific countries.

The Department of Foreign Affairs and Trade (DFAT) released a Foreign Policy White Paper in November 2017. It reiterates Australia’s development policy focus on promoting economic stability and addressing poverty in the Indo-Pacific region, in line with national interests. The White Paper specifically references global health risks as an important focus issue and commits Australia to supporting global health research and development (R&D), particularly in the areas of drug-resistant tuberculosis and malaria. The White Paper mentions Timor‑Leste as the focus of its engagement with neighboring countries. Overall the White Paper does not give strong emphasis to the role of development assistance. 

Australia focuses on channeling funding bilaterally

Australia mainly provides ODA through bilateral channels, which amounted to 70% (US$2.3 billion) of total ODA in 2016, above the OECD Development Assistance Committee (DAC) average of 62%. This large share is primarily due to Australia’s focus on providing ODA to neighboring countries in the Indo-Pacific region. This region has received more than 90% of geography-specific bilateral funding – funding that is allocated to a country or region – since 2014. The implementing agencies disbursed 52% of this ODA to Asian countries and 39% to Oceania between 2014 and 2016, according to OECD data.

Australia spent the largest share of bilateral ODA in 2015 on government and civil society (20%), followed closely by investments in multisector efforts (19%). Australia allocated relatively smaller proportions of the budget to education (10%), health and population (8%), humanitarian aid (7%), infrastructure (6%), and agriculture, forestry, fishing and rural development (5%). The country spent 8% of bilateral ODA in 2015 on administrative costs.

DFAT manages almost all of Australia’s overseas development programs

Australia’s Prime Minister, Malcolm Turnbull, leads overall policy decision-making. He has served as Prime Minister and Leader of the conservative Liberal Party since October 2015. In July 2016, Turnbull led the Liberal Party to narrowly secure enough seats to form a new Liberal National Coalition majority government. The next federal election is due between August 2018 and November 2019.

The Department of Foreign Affairs and Trade (DFAT) manages development policy and the development budget and delivers almost all Australia’s overseas programs. Former prime minister, Tony Abbott, integrated the Australian Agency for International Development (AusAID), the previous implementing agency, into DFAT in 2013. The justification for the merger was that it would help deliver a more responsive and flexible development program, better aligned with Australia’s national interests. Emulating the approach of conservative governments in Canada and New Zealand, the government under Prime Minister Abbott sought to save considerable administrative costs: DFAT cut 500 jobs by the end of FY2015-16 and plans to make further cuts in FY2017-18.

AUSTRALIA'S DEVELOPMENT COOPERATION SYSTEM

The Minister for Foreign Affairs, Julie Bishop, is the first female Minister for Foreign Affairs and is responsible for directing Australia’s development program. In 2015, Turnbull established the Minister for International Development and the Pacific position, a junior ministerial post, which is held by Concetta Fierravanti-Wells, to strengthen the relationship with the Pacific islands.

Within DFAT, the deputy secretary for Global Cooperation, Development and Partnerships oversees four development divisions. These include the Multilateral Development and Finance Division, which manages contributions to multilateral organizations, and the Multilateral Policy Division, which includes the Gender Equality Branch. DFAT’s innovation hub, known as ‘innovationXchange’, is hosted at DFAT but guided by a 14-member International Reference Group.

About 94% of the development program is managed by DFAT under Australia’s ‘whole of government approach’; the department cooperates with other government agencies, which deliver the remaining 6% of ODA.

Parliament: Australia’s parliament is responsible for debating and formally reviewing the final federal budget between May and June each year and passing it into law before the end of June, the end of the fiscal year. In practice, the budget, including the development budget component, is usually passed without amendments by the government majority in the House of Representatives. In the Senate, the proposed ODA budget is reviewed by the Foreign Affairs, Defense and Trade Legislation Committee. This committee can seek information on the proposed development program but has no power to amend the budget.

Civil Society: The government funds civil society organizations (CSOs) with A$183 million (US$136 million) under the umbrella of its ‘Global Programs’ component. In addition, Australian CSOs mobilize public support and voluntary contributions for development. In 2014, members of the Australian association for development NGOs, the Australian Council for International Development (ACFID), raised A$921 million (US$685 million) from the Australian community for development and humanitarian work. More than 140 Australian non-government organizations (NGOs) operate under ACFID’s self-regulatory and highly regarded Code of Conduct, which defines standards of good development practice for its members. ACFID also supports policy engagement with the Australian government, as the primary entry point for collaboration and collective action by development NGOs in Australia. Over fifty Australian NGOs have met comprehensive due-diligence requirements through accreditation under DFAT’s Australian NGO Cooperation Program. Accredited Australian NGOs are partners who have demonstrated their community support and their organizational capacity to deliver results, which enables them to receive funding from the government.

Further readings

Government sources

• Parliament of Australia; Infosheet 10 - The budget and financial legislation; 2016
• DFAT; Organisational Structure; 2018

Civil society sources

• ACFID; ACFID Analysis of the 2017-18 Federal Budget; 2017

There are two major funding lines; DFAT manages 94% of the ODA budget

Australia’s ODA budget for FY2017-18 stands at A$3.9 billion (US$2.9 billion). Within the ODA budget, almost all ODA is managed by the Department of Foreign Affairs and Trade (DFAT; 94%), while the Australian Centre for International Agriculture Research (ACIAR) and other government departments, including the Australian Federal Police, Treasury, and the Department of Immigration and Border Protection, channel only small amounts.

DFAT’s ODA budget provides detailed information on funding channels by regions and countries, as well as multilateral organizations, and is composed of two major funding lines: ‘Country and Regional Programs’ and ‘Global Programs’.

• ‘Country and Regional Programs’ contains budget lines for major regions, which are further broken down by annual allocations to specific country programs. It also includes a budget line on ‘Cross-regional Programs’, which contains funding for activities that cannot be clearly categorized to a specific region, such as scholarships. This budget line can also include allocations that were not finalized at the time of the budget announcement, such as for multilateral fund replenishments.

• ‘Global Programs’ envelope includes budget lines for multilaterals, civil society organizations (CSOs), and humanitarian assistance to the ‘UN, Commonwealth and Other International Organizations’. The Global Fund to Fight AIDS, Tuberculosis and Malaria (Global Fund); Gavi, the Vaccine Alliance (Gavi); and the Global Polio Eradication Initiative (GPEI) are usually included in the health-specific sub-funding line, ‘Contribution to Global Health Programs’.

Further readings

Government sources

• DFAT; Australian aid budget summary 2017–18; 2017

From October to December, new initiatives are advocated for and considered

The fiscal year (FY) runs from July to June:

• The Expenditure Review Committee determines budget priorities: The Expenditure Review Committee (ERC) of Cabinet – consisting of the Prime Minister, Treasurer, Finance Minister, and selected other ministers – meets in November and determines budget priorities. Based on these priorities, the Department of Foreign Affairs and Trade (DFAT) and other departments start to prepare requests for overall funding.
• DFAT prepares and develops its budget: From December to February, DFAT prepares its overall budget proposal and requests for specific budget lines. The calculation includes the expected budget for the upcoming fiscal year. At the end of this process, DFAT submits its budget request to the Cabinet’s ERC.
• The Expenditure Review Committee reviews draft budgets and departmental funding: From March to late April, the ERC meets regularly to review the overall draft budget and departmental funding. On the basis of the overall budget allocated to DFAT, the Foreign Affairs Minister makes a final decision on internal budget allocations.
• Parliament reviews the budget: The Treasurer announces the budget in early May and delivers it to parliament in a televised address on ‘budget night’, usually the second Tuesday in May. Between May and June, the Australian parliament debates and formally reviews the budget. Importantly, the development budget is embedded in the Foreign Affairs budget and is not featured as a major point for negotiation in Australian budget politics. In the Senate, the development budget is reviewed by the Foreign Affairs, Defense and Trade Legislation Committee. This committee can seek information on the proposed development program but has no power to amend the budget.
• Parliament approves the budget: After examination and debate, the Parliament formally approves the government’s budget in June. In practice, the budget, including the development budget component, is usually passed without amendments by the government majority in the House of Representatives. Throughout the FY, DFAT holds a significant amount of discretion on the distribution of not yet allocated funds, such as in cross-regional programs.

Australia continues to prioritize bilateral development support, delivered as grants

Australia’s core ODA funding to multilaterals stood at US$987 million or 30% of gross ODA disbursement in 2016. Australia’s multilateral focus is low compared to other members of the OECD Development Assistance Committee (DAC) (the DAC average multilateral spend is 38%). Key recipients of multilateral ODA were regional development banks (40% in 2016) and the World Bank (23%). UN agencies received 17% of multilateral funding.

In addition to core contributions, Australia channeled 18% of its ODA as earmarked funding through multilaterals in 2016 (DAC average: 11%). Future spending will be informed by a rolling program of performance assessments of multilateral agencies that commenced in 2015. Key criteria include alignment with government priorities, results, and value for money. The latest review was an independent evaluation of multilateral partnerships in the health sector of Papua New Guinea (PNG). Although the Global Fund received little mention, the review recommended the government liaise at the ‘highest level’ to ensure Gavi remains engaged in PNG, that is, until essential vaccination coverage rates increase substantially.

Australia provides almost all ODA as grants; it is unlikely that any significant share of ODA will be disbursed as loans in the coming years. Engaging the private sector and promoting its growth in developing countries is one of the government’s key development priorities. The government has set a funding target for ‘aid for trade’ of 20% by 2020. In the FY2017-18 budget, this level is at 19.7%. This is in line with the ‘Strategy for Australia’s Aid Investment in Private Sector Development’, which discusses how to use funding to foster investment environments, support growth, and maximize the development impact of business. Since 2014, the government has prioritized the empowerment of women and girls by establishing a Gender Equality Fund (US$41 million in FY2017-18), launching the ‘Gender Equality and Women’s Empowerment Strategy’, and setting a target that over 80% of development programs effectively integrate gender equality and women’s empowerment.

Who are Australia’s ODA recipients?

Funding is concentrated on the Indo-Pacific region; middle-income countries are prioritized

Australia’s bilateral ODA focuses on the Indo-Pacific region (90% of country- or region-specific funding has gone to the region since 2014). The government plans to continue to concentrate at least 90% of country program funding on the Indo-Pacific region while scaling back programs in other regions. This target is expected to be reached in FY2017-18 (91%). The share of country- or region-specific bilateral ODA going to sub-Saharan Africa (4% from 2014 to 2016) is far below the DAC average of 22% in 2015.

Papua New Guinea and Indonesia are the largest recipients of Australia’s bilateral ODA. Given their close bilateral relations with Australia, both countries are likely to remain priorities. However, in line with overall reductions in ODA, the Australian government has reduced assistance to Indonesia significantly in recent years, from US$422 million in 2013 to US$245 million in 2016. Development assistance to Indonesia has also slowed in recent years due to its strong economic growth and transition away from receiving ODA.

Australia heavily concentrates its development support on neighboring, middle-income countries (MICs). Between 2014 and 2016 Australia allocated 44% of total bilateral ODA to MICs (DAC average: 33%) and only 25% to low-income countries (LICs).

How is bilateral funding programmed?

DFAT’s geographic branches lead program design and implementation

Based on the government’s overall development policies, the Department of Foreign Affairs and Trade (DFAT) sets the country program priorities. DFAT’s geographic branches develop three yearly ‘Aid Investment Plans’ with major recipient countries, outlining Australia’s priorities and expected results. Individual aid activities are implemented within the agreed investment plan. DFAT executives responsible for geographic branches make final recommendations on funding for specific programs to the Foreign Affairs Minister, who approves major initiatives or delegates her funding power.

Performance benchmarks are set and reviewed through annual program performance reports. These are discussed each year with the partner country.

Further readings

Government sources

• DFAT; Australian aid budget summary 2017–18; 2017