(C) Common Dreams
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Inequality: Global trends [1]
['Zach Christensen']
Date: 2024-09
International development finance can redistribute money from high-income countries (HICs) to LICs. When effectively targeted to reach the people living in greatest poverty within a country, it can also help to reduce inequalities within countries.
International development finance includes official flows such as ODA grants and loans from international financial institutions; commercial flows, such as foreign direct investment (FDI); and private flows, such as remittances and philanthropy, which tend to originate in countries with higher incomes than where they are received. The extent to which this finance can reduce inequality depends on the terms associated with the contracts and how the money is spent in-country. Loans are an example of where an initial transfer of funds from a high-income country to a low-income country is followed by loan repayments and interest, which flow back in the opposite direction. Loans are making up an increasing share of development finance in countries such as Uganda and Kenya. Progressive development finance can also be undermined by illicit financial flows, which flow from LICs to tax havens and other entities in high-income countries. In Africa, the billions of dollars lost to illicit financial flows are almost equal to ODA and FDI according to UN estimates, undermining Africa’s ability to leave no one behind.
ODA in particular, is conceptually well placed to tackle the most complex needs in LDCs; it has a clear remit to deliberately transfer resources to the poorest people. The scale of ODA flows is small: calculated at US$186 billion in 2020. However, it remains the most important source of development finance in the most fragile places. Fewer domestic resources and less income from key international financial flows (such as FDI, remittances and tourism) put more reliance on ODA as a key resource for the funding of basic human capital investments that tackle poverty.
But the eligibility for ODA funding has been expanding in recent years to include high-income countries, and the competition for ODA across multiple demands has diluted the potential for these funds to have a laser-like focus on getting to the poorest people in the poorest places first. Instead, according to analysis from the Center for Global Development, the very poorest countries received the least ODA per person living in poverty. ODA has not adapted to reflect changing distributions of poverty and the impacts of the pandemic. In particular, while it is estimated that in 2021 over half of the population living in extreme poverty were in LDCs, these countries received only 25% of ODA.
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[1] Url:
https://devinit.org/resources/inequality-global-trends/#:~:text=According%20to%20the%20World%20Inequality,%2457%2C300%20per%20adult%20in%202021.
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