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Finance & Innovation

Ending poverty: where will the money come from?

When it comes to ending poverty most of us automatically think about aid (or ‘official development assistance’, to give it its proper name) as the main source of money used to help the poorest people in the world. In many ways that’s right – aid is the main international financial resource with the purpose of improving the welfare and development of poor countries. 

Aid is important for many countries, particularly those in sub-Saharan Africa and Southern/Eastern Asia. In our blog last week – ‘The 10 things to do to end poverty by 2030’ – we highlighted that aid is still the largest financial resource that flows into countries where governments spend less than $500 per person per year. So you can compare, governments in the richest countries spend on average $15,025 per person per year – that’s 30 times as much. 

International resource flows to developing countries have grown rapidly | 2011 US$ trillions, 1990–2011

Although rich countries have given more aid since 2000 (shown by the red layer at the bottom of the chart above), aid targets haven’t been met. Only five countries have met the UN target of giving 0.7% of their gross national product to aid (though a sixth, the UK, is likely to have met it last year once official figures are announced in April). So if we’re going to end poverty by 2030, we’re going to need to look at other sources too.

What other financial flows can have an impact on poverty?

Development Initiatives’ Investments to End Poverty report shows aid is not the only financial flow to developing countries that can have an impact on poverty. All investments into poor countries – domestic, international, public, private and commercial – can contribute to ending poverty. For some of these investments the impact will be felt straight away, for others it’ll be felt over the longer term. Either way, we need to use them all.

The good news is that, as the chart above shows, developing countries have more international resources available to them than ever before. Resources flowing into developing countries have more than doubled since 2000, topping an estimated $2.1 trillion in 2011. The amount that developing country governments spend in their own countries has also gone up, reaching $5.9 trillion a year.

But even if other resource flows to developing countries are much larger than aid, that doesn't necessarily mean they'll focus on ending poverty. Resource flows perform different functions. It’s a case of how we use them to work together to end poverty.

So, how can we use all resources to end poverty? 

“[We need to] forge a new global partnership. It is time for the international community to use new ways of working, to go beyond an aid agenda.”

The UN Secretary General’s High Level Panel on Post-2015: Final Report, May 2013

Here are some ideas:

• The international community needs to continue to innovate and forge new partnerships. Many financial flows could work better with the aid that we spend. The challenge is to take a joined-up approach and make sure it works.

• Better information is needed to deliver better results. Using all resources to reduce poverty will be easier when we have a clearer picture of who provides them, who controls them, and where and on what they are spent.

• Where domestic resources are scarce, aid should be used to create favourable conditions for other types of financial flows such as private investments. Aid can support people who are not able to seize the opportunities brought by private investment and economic growth.

• We should remember it’s a two way street. International resources flow both ways and financial resources also flow out of developing countries. Some of these are legitimate transfers of profits; but others are not. We need to stop money flowing out of developing countries illicitly by demanding international commercial flows are more transparent. 

• Finally, we need global citizens like you to put pressure on governments. You can ensure our leaders get the message of the need to use all resources available by signing Global Citizen’s petition to get your government to commit to ending poverty by 2030.

If you want to find out more about the resources flowing to developing countries, check out Development Initiatives’ interactive tools

By Cordelia Lonsdale, Engagement & Communications Officer & Tim Strawson, Senior Analyst. | Development Initiatives