Australia donor profile

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

According to preliminary OECD data, Australia’s net ODA stood at US$3.0 billion in 2016 (in 2016 prices; US$3.7 billion in 2014 prices), making it the 13th-largest DAC donor.

Net ODA decreased by 13% compared to 2015. Cutting the ODA budget has become one of the biggest sources of savings required to meet austerity measures and has been declining consistently since 2012. This brings Australia’s net ODA to 0.25% of its GNI, a share expected to decrease to 0.22% in 2017.

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 fiscal year (FY) 2014-15 and FY2015-16, decreasing from A$5 billion (US$4.5 billion) to A$4 billion (US$3.7 billion). The FY2016-17 ODA budget sees a further decrease of US$202 million to A$3.8 billion (US$3.5 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 FY 2017-18 budget in May 2017. This budget maintains a cap on ODA at A$3.9 billion (US$3.5 billion), allowing an increase only for inflation. From 2019 to 2021, however, the government is also freezing inflationary increases. This will result in an additional projected cut of about A$300 million (US$270 million) - a reduction of nearly 5% in real value through 2021. ODA has decreased from 0.36% of GNI in 2012 to 0.25% in 2016, and is expected to drop further. This share of net ODA in 2016 ranks Australia the 17th-largest donor relative to its GNI. Loan repayments, which denote the difference between net and gross ODA, and include offsetting entries for debt relief, made up for less than 1% of the gross ODA budget between 2013 and 2015.

Focus on promoting national interest and ‘aid for trade’

Australia’s development 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.

Australia’s development priorities:

• Indo-Pacific: Australia continues to focus its funding on neighboring countries in the Indo-Pacific region (89% of geography-specific bilateral funding in 2013 to 2015), 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 investments “effectively addresses” gender equality issues.
   

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.

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 unleashing drivers of development and on maturing 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.

Australia focuses on channeling funding bilaterally

Australia mainly provides official development assistance (ODA) through bilateral channels, which amounted to 79% (US$3.3 billion) of total ODA in 2015, well above the overall 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 received 89% of geography-specific bilateral funding between 2013 and 2015.

The term 'geography-specific' refers to all funding which is allocated to a country or region.

The implementing agencies disbursed 54% of this ODA to Asian countries and 35% to Oceania, according to OECD data.

Australia spent the largest share of bilateral ODA in 2015 on multisector efforts (21%), followed by investments in government and civil society (17%) and education (12%). Australia allocated relatively smaller proportions of the budget to health and population (9%), humanitarian aid (9%), agriculture, forestry, fishing and rural development (5%), and infrastructure (6%). The country spent 7% 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 Department of Foreign Affairs and Trade (DFAT) manages development policy and the development budget and delivers the vast majority of 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. It was claimed that this merger 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 former government sought to save considerable administrative costs: DFAT cut 500 jobs by the end of fiscal year (FY) 2015-16.

AUSTRALIA'S DEVELOPMENT COOPERATION SYSTEM

The Minister for Foreign Affairs, Julie Bishop, is the first female Foreign Minister 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, Deputy Secretary Ewen McDonald oversees four development divisions, including 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. While 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 approximately 6% of ODA.

Australia’s parliament is responsible for debating and reviewing the overall federal budget between May and June, and passing it before the end of June. Importantly, the development budget component is not featured as a major subject of negotiation in Australian budget politics and it 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.

The government funds civil society organizations (CSOs) with A$178 million under the umbrella of its ‘Global Programs’. 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 US$838 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.

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

Australia’s official development assistance (ODA) budget for fiscal year (FY) 2017-18 stands at A$3.9 billion (US$ 3.5 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.
• The ‘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 Global Polio Eradication Initiative (GPEI) are usually included in the health-specific sub-funding line, ‘Contribution to Global Health Programs’.

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

The fiscal year 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 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 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, potential amendments, and voting on the budget bill, the parliament approves the government’s budget in June. 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$897 million or only 21% of gross ODA disbursement in 2015. Australia’s multilateral focus further declined between 2014 and 2015 and 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 included UN agencies (48% in 2015), the World Bank (25%), and regional development banks (13%). In addition to core contributions, Australia channeled 23% of its bilateral ODA as earmarked funding through multilaterals in 2015 (DAC average: 11%).   Earmarked contributions to UN agencies were sharply cut between fiscal year (FY) 2014-15 and FY2015-16, but have largely stabilized at the start of FY2016-17. Future spending will be informed by a rolling program of multilateral performance assessments that commenced in 2015. Key criteria include alignment with government priorities capacity, results, and value for money.

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. Funding for ‘aid for trade’ has risen from 13% of the ODA budget in FY2013-14 to 19.5% in FY2015-16, just below the 20% target set by the government for 2020. 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$50 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: DFAT reports that 78% of investments did so in FY2014-15.

Who are Australia’s ODA recipients?

Funding is concentrated on the Indo-Pacific region; prioritization of middle-income countries

Australia’s bilateral ODA focuses on the Indo-Pacific region (88% of geography-specific funding from 2013 to 2015). The government plans to concentrate at least 90% of country program funding on the Indo-Pacific region while scaling back in other regions. This target is expected to be reached in FY2017-18 (91%). The share of geography-specific bilateral ODA going to sub-Saharan Africa (7% from 2013-2015) is far below the DAC average of 25% in 2015. According to overall budget data, ODA to sub-Saharan Africa declined from US$243 million in FY2014-15 to US$87 million in FY2015-16, but is expected to increase slightly to A$108 million (US$97 million) in FY 2017-18.

Papua New Guinea and Indonesia are the largest recipients of bilateral ODA. Given their close bilateral relations with Australia, both countries are likely to remain on top; however, these countries are not safeguarded from cuts, as the Australian government reduced ODA to Indonesia from US$515 million in 2013 to US$443 million in 2015.

Australia heavily concentrates its development support on neighboring, middle-income countries (MICs). Between 2013 and 2015 Australia allocated 45% of total bilateral ODA to MICs (DAC average: 34%) and only 26% to low-income countries (LICs). The LIC proportion of bilateral ODA is likely to further decrease as funding to sub-Saharan Africa is scaled back.

How is bilateral funding programmed?

DFAT’s geographic branches lead program design and implementation

Based on the government’s overall development policy priorities, DFAT sets the country program priorities. DFAT’s geographic branches develop ‘Aid Investment Plans’ with major recipient countries, outlining Australia’s priorities and expected results. Based on Government ODA priorities, DFAT’s geographic branches hold annual country consultations with recipient country governments to inform programming. During the consultations, funding priorities for the following year are agreed. 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 funding power.