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AidWatch 2006: EU aid: genuine leadership or misleading figures? An independent analysis of European Governments’ aid levels

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EU aid: genuine leadership or misleading figures?

European Governments provide over half of the world’s development aid. In international development negotiations over the last five years they have provided crucial international leadership. In 2005 they pledged further increases to aid levels in order to help fight world poverty. If these pledges are honoured, Europe will provide at least $38 billion more aid a year from 2010 onwards. Increases in high quality aid are vital for the fight against poverty. Providing more aid would enable millions of people in desperate poverty to get access to health, education and productive opportunities.

In 2002 European Governments set themselves a collective target of providing 0.39% of their gross national income (GNI) for Official Development Assistance (ODA) by 2006 and individual minimum targets for each country of 0.33% of ODA/GNI by 2006. This commitment was renewed and expanded in 2005, following civil society campaigning, with European Governments agreeing to contribute 0.51% ODA/GNI by 2010.

New official figures released by the Organisation for Economic Cooperation and Development (OECD) in April 2006 and the European Commission in March 2006 show that European Member States are fulfilling their promises and are actually ahead of their collective target and doing better than expected. However, there is no room for complacency.

This briefing shows that, according to our calculations €13.5 billion – or almost one third – of reported European ODA in 2005 did not provide any new aid for developing countries. This vast amount of apparent aid spending was in fact money for debt cancellation and for foreign student costs and refugees in donor countries.

Official debt data reveals that more than €9 billion of EU aid in 2005 was spent on the cancellation of two countries’ debt: Iraq and Nigeria. Iraqi and Nigerian debt is largely export credit debt. It was issued primarily as a means of subsiding European companies operating in developing countries and never had any development purpose. While cancellation of this debt is vital, the resources released for poverty reduction will be far smaller than the headline figures suggest. European Union Governments’ insistence on accounting for this cancellation in their official aid figures also contravenes the United Nations Monterrey agreement, which calls for debt cancellation to be funded additionally to Official Development Assistance.

In addition, assuming that in 2005 European countries continued to spend similar levels of their ODA on these items as in the previous five years, a further €840 million will have been spent on housing refugees within European countries, and €910 million of EU aid on educating foreign students within European countries.

While spending on foreign students and refugees in Europe is important, these are not expenses which the public rightfully expects to be described as development assistance. This is because they provide no new resources for developing countries and are not tied to development objectives of improving the welfare and human security of the poor.

If these items are removed from headline aid figures, as the NGOs from across Europe who have combined forces to produce this analysis believe they should be, then Europe has still a long way to go in its fight against world poverty. This report calls for a clean up in aid reporting to ensure that the only aid that is counted is aid that saves lives and not simply that which saves face.

Current aid reporting rules are set by the Organisation for Economic Cooperation and Development. The OECD allows European Governments to regularly include spending on debt relief as aid and to count spending on refugees and foreign students in their own countries as ODA. This must be changed immediately in order to prevent Governments from misleadingly inflating aid figures. The credibility of Europe is at stake.