Wrecking Ball: The Ukraine Crisis and Global Aid
As the toll of Russia’s brutal invasion of Ukraine continues to mount, albeit interspersed with some rare glimmers of hopethe implications for global aid become clearer and more worrying.
The effects on aid are both indirect and direct. In terms of indirect effects, food and energy inflation resulting from the crisis (associated with COVID-19 and climate change) increases extreme poverty; strain formal and informal social protection programs in many low- and middle-income economies that are already heavily indebted; and worsening famine, conflict and fragility in countries like Somalia, Yemen and Afghanistan. At the same time, donor fiscal space and political appetite for massive aid responses to this increased demand are constrained by internal support programs to combat the effects of soaring energy prices and higher inflation in the country. Inflation also erodes the real value of existing donor aid efforts.
There are also the direct costs of non-military financial, humanitarian and refugee support which is (understandably) intended to help Ukraine and its people, but which could shift spending for needs elsewhere. Recent analysis by the secretariat of the OECD Development Assistance Committee (DAC) has attempted to quantify the potential magnitude of these direct costs based on donor funding commitments and refugee movements to date.
In terms of financial and humanitarian assistance, commitments to Ukraine are now estimated to represent a significant – and, in the case of Poland, more than – share of the amount that many DAC donors have spent overall of their official development assistance (ODA) budgets in 2021 (Figure 1).
Based on commitments made in mid-June, the overall cost of aid to Ukraine in 2022 is expected to reach more than a quarter of the total ODA spent by DAC donors last year, or around $46 billion. The Only the United States has committed $8.5 billion in direct budget support to Ukraine to date, plus significant humanitarian assistance. By comparing, in 2020, Ukraine received $2.6 billion in ODA from all donors, including $779 million from DAC countries.
Then there is the cost of hosting refugees by donors during their first year of stay, which some DAC members consider to be ODA. Although these estimates are more difficult to generate, the OECD calculated the costs of a three-month stay for refugees based on the number of Ukrainian refugees hosted by DAC donors (Figure 2).
Based on the number of Ukrainian refugees as of mid-June, the total cost of a three-month stay is estimated at around 3.3% of 2021 ODA, or around $5.2 billion. If, as is likely, these refugees are forced to stay longer and/or if there are more Ukrainian refugees, these costs will increase. A UK-based civil society group estimated that the total living expenses of refugees in the donor country could quadruple in 2022 and reach up to 46 billion US dollars. It will not be until April 2023, when the DAC reports its members’ expenses for that calendar year, that we will know the total amount of these costs.
And, of course, neither set of estimates includes the future costs of Ukraine’s post-war reconstruction, which a recent joint European Union-World Bank evaluation amounts to 349 billion dollars, and which will increase as long as the war continues.
These additional costs are not necessarily zero-sum. Donors may supplement their aid budgets to meet the direct costs of the Ukrainian crisis, including the stay of refugees, as well as to support future reconstruction efforts. Indeed, DAC members increased their aid for the second consecutive year in 2021, and major donors, such as the United States and the European Unionadded their aid to Ukraine.
But most of the increase in aid from DAC countries in 2021 was for COVID-19 vaccines, not humanitarian crises. And, in the face of rising inflation, several European donors have already made significant “reallocations” of aid to offset the costs of their aid to Ukraine, including the stay of refugees in the country. According to the DAC Secretariat, the Netherlands, Sweden and Denmark have already announced reassignments with a combined value of US$1.4 billion. The German finance minister proposed a 12% reduction in aid to help fund national energy and income support programs. And, in the case of the UK, refugee costs in donors of around £2-3bn in 2022 (i.e. potentially more than a quarter of the £11.5bn spent in 2021) will be probably counted in his ceiling of 0.5% ODA as a proportion of gross national income, which some will interpret as the last in a series of consecutive cuts to help by the Johnson/Truss governments.
write for Foreign AffairsIan Mitchell and Nancy Birdsall of American Society Center for Global Development argues that Western donors’ propensity to “cook the books” and consistently underfund global aid and climate finance “undermines the credibility of Western donors and hurts the United States and its allies in their competition with China for worldwide influence”.
While Australia has almost never counted refugee costs in donors as aid, it is worth remembering that it is far less generous than most European donors, including the UK. Nor will he ever come close to the United States when it comes to sharing the global aid burden. But Australia also seeks to be credible in the race for influence. As the Ukraine crisis continues to present the world with tough choices, the Albanian government should, starting with Australia’s shrinking aid budget, ensure that Western support for Ukraine does not not to the detriment of aid efforts in other parts of the world.
This research was undertaken with support from the Bill & Melinda Gates Foundation. Views represent those of the author only.