Development assistance for the poor in not-so-poor countries

The United Kingdom’s recent announcement to continue giving grant to “India” –rated as having one of the world’s fastest growing economies- has triggered a debate on the current model of development assistance. Over the past few years a large number of once-poor countries and major recipients of foreign aid have reached middle-income country status, which is set by the World Bank at $1,000 per person per year.

As per World Bank’s annual reclassification of countries carried out in July 2010, Senegal, Tuvalu, Uzbekistan, Vietnam and Yemen are five more developing countries that officially lost their “poor” status and acquired middle-income country (MIC) status.

Other growing MICs include Ghana, Cameron, Angola, and Sudan. This rising trend bears testimony to the fact that the problem of global poverty has changed and is no longer confined to “poor countries.” New Institute of Development Services (IDS) research shows that there is a new “bottom billion” of the 960million poor people or 72 per cent of the world’s poor who live not in poor countries but in MICs. This is a dramatic change from just two decades ago, when 93 per cent of poor people lived in low-income countries (LICs).

What does this changing state of global poverty mean to the donors? Should international agencies with a focus on poverty reduction recalibrate their engagement in MIC’s?

In, Poor Countries Or Poor People, Ravi Kanbur argues that the development cooperation literature identifies three arguments for continued assistance:
1) Pockets of Poverty: Assistance is called for by poverty no matter where it occurs–whether in poor countries or in non-poor countries. It is poor people who matter fundamentally, and poor countries matter only indirectly, as a leading indicator of where the poor might live. And it is of course this indicator that might be brought into question in the new global patterns of poverty.

2) Spillover Effects: Poverty in MICs may lead to cross-border negative externalities to other countries, especially LICs and the poor who live in them. There are many examples of such spillovers, including global warming and other environmental externalities, financial crises and their spillover effects, the spread of infectious diseases, and migration.

3) Knowledge Transfer: By engaging with MICs, aid agencies gain knowledge that can then be useful to reduce poverty in poorer countries, such as implementing social safety nets. These provide minimum levels of social protection or guard against economic and other shocks with cash payments, or food or other measures, given directly to the poor.

Global poverty is no longer construed as a problem afflicting only the world’s “poor countries.” This fact makes it imperative for the new and old donors to rethink their approaches and strategies. Donors should design aid policies in context of the changing concepts of global poverty and decide on the aid objectives, allocations and instruments to meet this “new geography of global poverty.”

Laurence Chandy and Geoffrey Gertz at the Brookings Institution believe that by 2015 the proportion of the world’s poor in MICs will still be 55%, which implies that many of the MICs still need aid.

However, while making aid decisions, donors should take into account the fact that MICs are diverse groups and require more detailed sub-categories. Thus we have emerging powers like India and Indonesia, where the aid is not enough compared to the size of the economies; they still have substantial pockets of poverty. Similarly countries like Pakistan and Nigeria are fragile MICs and the aid again is small compared to the size of their economies. Then there are stagnant, non -fragile MICs and also fast growing poor countries such as Ghana.

The essence of the development assistance is to realize the objective of reducing global poverty and this can be done only if donors continue to work in the MICs, because that is where most of the poor live.

Finally as Richard Miller says in his book, Globalizing Justice: The Ethics of Poverty and Power, there may be a moral obligation to give development assistance to MICs, because they are still part of global power relations (for example in trade and finance patterns) that may disadvantage them to some extent until those global relationships change.

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