Countries with booming economies still need foreign aid

Excerpts from Bill Gates:  When world leaders recently gathered in Ethiopia] one important issue that didn’t draw much attention … is how we treat countries that have built strong enough economies to lift themselves out of extreme poverty, but which still have a lot of people who are barely getting by.

The system of development finance currently used by many donor governments and international financial institutions allocates funding to countries based in significant part on their average income per person. As economic growth moves countries like India and Nigeria into the “middle-income tier,” they become ineligible for many of the grants and low-interest loans used to fund basic infrastructure and essential services. The problem with this is that huge pockets of poverty still exist in many of the countries facing a cutoff of funds. In fact, more than 70% of the world’s poorest people live in countries defined as “middle income” by the World Bank.

Clearly, a nation’s access to the most favorable financing for development should taper off as the level of personal income grows. But if we make countries with high levels of inequality and poverty ineligible for aid too soon, it will become increasingly difficult for them to continue on a path of economic growth.

Based on current trends, our foundation estimates that countries such as India, Ghana, Nigeria, and Vietnam could lose between 18% and 40% of their funding from donor countries and multilateral aid programs. Cuts of this magnitude would have a severe impact on basic health and social programs that rely on donor funding to operate.

If we are intent on helping the world’s poorest lift themselves out of poverty, we need to ensure that development assistance reaches people in need, regardless of where they live. The classification of countries based mainly on average income should be updated to incorporate other measures centered on improving the human condition such as better access to health services and education. And we need to think about the right incentives and approach for a thoughtful and smooth transition for each country to reach self-sufficiency. Read more  

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