Aid for Trade: widening gap between disbursements and commitments amid increased needs

What is Aid for Trade?

The Aid for TradeMeasures aimed at assisting developing countries to increase exports of goods and services, to integrate into the multilateral trading system, and to benefit from liberalized trade and increased market access. It is considered as part of ODA. Effective Aid for Trade will enhance growth prospects and reduce poverty in developing countries, as well as complement multilateral trade reforms and distribute the global benefits more equitably across and within developing countries -—
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—-. It is measured as gross disbursements and commitments of total ODA from all donors for Aid for Trade -—
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—-. initiative was launched at the 2005 WTOWorld Trade Organization Ministerial Conference in China, Hong Kong (SARSpecial Administrative Region) -—
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—-. Its goal is to help developing countries, particularly LDCsLeast developed country, build the supply-side capacity and trade-related infrastructure that they need, to assist them in implementing and benefiting from WTO agreements and, more broadly, in engaging in international trade. The assistance is targeted at enhancing national trade policy and regulations, developing infrastructure, and building productive capacity. Aid for Trade is an integral part of regular ODAOfficial Development Assistance (ODA) are resource flows to countries and territories which are: (a) undertaken by the official sector; (b) with promotion of economic development and welfare as the main objective; (c) at concessional financial terms (implying a minimum grant element depending on the recipient country and the type of loan). In addition to financial flows, technical co-operation is also included -—
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—-. programmes. It covers three main categories: i) economic infrastructure; ii) economic capacity building; and ii) trade policy and adjustment¹.

The OECDOrganization for Economic Cooperation and Development and WTO put in place the 'aid-for-trade monitoring framework' to evaluate the progress in implementing the Aid-for-Trade Initiative. The seventh joint OECD-WTO Aid for Trade monitoring and evaluation exercise held in 2019 highlighted the importance of economic and export diversification, with a focus on promoting growth in the manufacturing sector for African countries, and the role that economic empowerment can play to facilitate this process as well as benefit from it -—
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—-. The eighth global review of Aid for Trade which is to take place in July 2022, with the theme of “Empowering connected, sustainable trade”, will discuss the key areas where developing countries and LDCs need a support to overcome supply-side constraints limiting their participation in international trade. This exercise will also focus on policies promoting women's economic empowerment and on the opportunities that inclusive growth and digital connectivity offer to meet the SDGSustainable Development Goal targets -—
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Academic research and donor evaluation programmes provide evidence of the positive impact of Aid for Trade -—
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—-. Such evaluation, however, can be limited by scarcity of useful data and methodological challenges -—
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—-. A study on the effectiveness of Aid for Trade suggests that a one per cent increase in Aid for Trade for policies and regulations (as a percentage of GDPGross domestic product (GDP) is an aggregate measure of production, income and expenditure of an economy. As a production measure, it represents the gross value added, i.e., the output net of intermediate consumption, achieved by all resident units engaged in production, plus any taxes less subsidies on products not included in the value of output. As an income measure, it represents the sum of primary incomes (gross wages and entrepreneurial income) distributed by resident producers, plus taxes less subsidies on production and imports. As an expenditure measure, it depicts the sum of expenditure on final consumption, gross capital formation (i.e., investment, changes in inventories, and acquisitions less disposals of valuables) and exports after deduction of imports -—
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—-.) induces a 0.15 per cent decline in tariff volatility -—
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—-. According to the OECD, for every dollar of Aid for Trade, on average eight additional dollars in exports from all developing countries are generated; this reaches up to twenty dollars for the poorest countries -—
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Aid for Trade flows remained resilient despite the COVID-19 crisis

The COVID-19COVID-19 is an infectious disease caused by the strain of coronavirus SARS-CoV-2 discovered in December 2019. Coronaviruses are a large family of viruses which may cause illness in animals or humans. In humans, several coronaviruses are known to cause respiratory infections ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). The most recently discovered coronavirus causes coronavirus disease COVID-19 -—
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—-. crisis created major setbacks in financing for sustainable development, which had already been under strain before the pandemicCommonly described by the WHO as ‘the worldwide spread of a new disease’, no strict definition is provided. In 2009, they set out the basic requirements for a pandemic: • New virus emerges in humans
• Minimal or no population immunity
• Causes serious illness; high morbidity/mortality
• Spreads easily from person to person
• Global outbreak of disease.
The US Centre for Disease Control uses a similar approach, but with a reduced set of criteria. It is very difficult to gauge whether the spread of a disease should be termed an outbreak, epidemic or pandemic. In other words, when to declare a pandemic isn’t a black and white decision -—
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—-.. Foreign aid to developing countries rose to unprecedented levels in 2020 (US$161 billion in real terms), partly due to additional spending mobilized to help developing countries deal with the COVID-19 crisis and an increase in bilateral sovereign lending by some donors -—
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—-. However, the UN warned that increasing spending of donors on military expenditures and on Ukrainian refugees in Europe because of Russia-Ukraine war could occur at the expense of ODA provided to the poorest countries and climate action -—
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In 2020, the donors maintained and even increased the Aid for Trade volumes, supporting an inclusive global recovery. In 2020, the Aid for Trade disbursementsAid for Trade disbursements refer to the release of funds to or the purchase of goods or services for a recipient; by extension, the amount thus spent. Disbursements record the actual international transfer of financial resources, or of goods or services valued at the cost to the donor -—
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—-. from official donors to developing economies rose to an all-time high of US$48.7 billion in constant 2020 prices, up almost 4 per cent compared to 2019, and up 136 per cent compared to 2006. Aid for Trade commitmentsAid for Trade commitment is a firm obligation, expressed in writing and backed by the necessary funds, undertaken by an official donor to provide specified assistance to a recipient country or a multilateral organisation -—
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—-. to developing economies totalled US$64.6billion, in 2020. This represents a yearly increase of nearly 19 per cent, and an increase of 139 per cent compared to 2006, the baseline year which followed the launch of the Aid for Trade initiative. However, the Aid for Trade disbursements fell short of commitments by about a quarter. The average Aid for Trade gap amounted to approximately US$9 billion for the period of 2002-2011 and to US$13 billion for the period of 2012-2020. The Aid for Trade disbursements to LDCs, in 2020, were 2.7 times higher than those in 2006 and stood at US$14 billion. It is slightly below the 2019 peak of US$14.3 billion. The ratio of total disbursements to total commitments to LDCs was 71 per cent in 2020 (see Figure 1).

Despite the growth in volumes, the share of Aid for Trade in total ODA disbursements declined by 12 per cent in 2020, as compared to the previous year, when it peaked at more than 28 per cent. Its share amounted to approximately 25 per cent in 2020 (see Figure 2).

Aid for Trade goes primarily to Africa and Asia

Africa and Asia received most of the global Aid for Trade disbursements in 2020, US$18.5 billion (38 per cent) and US$17 billion (35 per cent), respectively (see Figure 3).

The countries that received the most Aid for Trade in 2020 were India (US$ 2.7 billion), Bangladesh (US$ 2.5. billion), Egypt (US$1.8 billion), Ethiopia (US$1.6 billion), and Kenya (US$1.3 billion) (see Figure 4).

Aid for Trade targets economic capacity building and infrastructure

Economic infrastructure and economic capacity building represented the bulk of total Aid for Trade disbursements. In 2020, they amounted to US$23.7 billion and US$23.9 billion (49 per cent each). Trade policies and regulations accounted for only US$1.1. billion (2 per cent). Assistance in the energy sector was the highest (24 per cent), followed by transport and storage (23 per cent) and agriculture (18 per cent) (see Figure 5).

The sectors receiving Aid for Trade disbursements vary across regions. In 2020, the transport sector led disbursements in Oceania, with 44 per cent of allocated total and Asia with 37 per cent of allocated total. Energy and agriculture were the dominant beneficiaries in Africa, accounting for 23 per cent of total disbursements each, while only 16 per cent of spending went to transport (see Figure 6). On average, only 0.4 per cent of total Aid for Trade disbursements to developing countries were allocated to tourism, the sector most severely hit by the COVID-19 pandemic.

Notes

1. Economic infrastructure includes transport and storage, communication, and energy. Economic capacity building includes banking and financial services, business and other services, agriculture, forestry and fishing, industry, mineral resources and mining, and tourism. Trade policy and adjustment includes trade policy and regulations.

References

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