Rethinking aid strategy

Not working up to join the ranks of emerging economies may seem like a blessing in disguise for Pakistan now that the European Commission has decided to cut aid to 19 emerging economies from 2014. The list of EUs de-listed countries includes Brazil, India, China, Argentina, Peru, Colombia, Malaysia, Indonesia and Thailand. "The shift is ostensibly designed to concentrate European aid on the worlds poorest countries where EU funds can make a tangible difference, rather than spending it in places where rapid economic growth has given local governments the means to fund their own development initiatives," said Stanley Pignal in an article in the Financial Times this week. EUs shift in aid policy comes at the heels of severe economic woes the bloc is mired with. But though the move may reflect on EUs keenness to reduce spending, the Commission has also clarified that the overall amount it spends on aid will not decline. A European confederation of relief agencies has objected to the aid withdrawal, claiming that commendable improvements in economic indicators mask pockets of poverty in seemingly growing countries. However, a glance at the Human Development Indices for the 19 countries shows that most are in the high human development category and some even in the very high human development category (see table). At the same time, human development indices of some key countries show that they not only are better than the worlds average human index, but also have also improved at a better pace (see graph, the worlds average HDI curve is relatively shallow). It seems like the EUs stance may be a wise one. An article in BBC published earlier this year questions aid given to India. "The UK taxpayer does not need to donate to a state that is itself a foreign aid donor, which is classified by the World Bank as a Middle Income Country (MIC) and whose economy is growing at nearly 10% a year," says the article regarding newspapers and politicians objections to aid to the booming country. Similarly, one can help but wonder at the feasibility of extending aid to China-a country which has loaned out over a trillion dollars to the US. Ironically, some of these countries are also huge aid donors themselves, as an article in the Economist criticised Brazil for its lavish assistance towards African countries and for donor agencies, when "the country still has large pockets of third-world poverty". Evidently, it is about time to let these emerging countries spread their success stories to some poverty-stricken nooks of their boundaries. They should rather share the fruits with less developed countries than compete for the funds available for aid.

==================================================================
HDI categories
==================================================================
Very high HD           High HD                           Medium HD
==================================================================
Aregntina, Chile    Brazil, Colombia, Costa Rica,    China, India,
                    Ecuador, Kazakhstan, Iran,          Indonesia,
                    Malaysia, Mexico, Panama,            Maldives,
                    Peru, Venezuela, Uruguay              Thailand
==================================================================

Source: Human Development Report 2011