There has been an ongoing debate on the future need for foreign aid -- a debate made ever more crucial by the current budget constraints in many countries as a result of the financial crisis. Some contend that aid budgets should be ramped up to counter the continued existence of severe poverty in the world; others argue that aid has been ineffective in the past, and in some cases, stymied growth in developing countries. In between these two poles, we are confronted with the new realities of foreign development aid.
As emphasized by Wolfgang Fengler and Homi Kharas, authors of Delivering Aid Differently -- Lessons From the Field, the recent transformations in the foreign aid environment are threefold. First, strong growth in the developing world has changed the face of aid recipients. Where developing countries were once collectively grouped as the "Third World," previously poor countries and regions are transcending the need for aid -- and some are becoming donors themselves. Second, a new troupe of actors is stepping onto the donor stage. In addition to the aid provided by traditional donors, a vast array of international non-governmental organizations, philanthropic foundations, multinational corporations, and faith communities are assuming a larger role than ever. Third, innovation, information, and technology are changing the delivery of aid. In terms of building local capacity to take on today's development challenges, the transfer of knowledge is now becoming as important as financial aid itself.
Against these fundamental changes and new realities in the aid landscape, Fengler and Kharas propose a new aid model to meet the demands of the 21st century. In particular, the authors contend, "Aid can work, but it needs to be delivered differently to create a lasting impact in the years to come." And to achieve future results, they argue, "Today, aid needs to leverage knowledge -- the hardest currency of the 21st century -- to evaluate programs, identify successes, and then scale up." In the future, the new realities of the aid environment need to be confronted head on, and any meaningful institutional changes must target aid impact and reach. The new approaches argued by Fengler and Kharas in this week's Economic Premise may indeed provide the best way forward.
This blog was originally posted on the World Bank Insititute Growth and Crisis website.