The Macro-Economic Effects of UK Aid Returning to 0.7% of GNI

Main points

• The UK has recently reduced its foreign aid budget from 0.7% of gross national income (GNI) to 0.5%, with a view to going back to 0.7% when the fiscal context allows, estimated to be in 2024/5. The provision of aid is motivated by a wide range of factors that include moral, historical, strategic and security reasons. The primary aim of this paper is to complement the broad existing literature that focuses on the social and ethical aspects of aid by exploring aid flows from a macroeconomic perspective.
• The analysis reveals that the decision to cut UK aid will provide negligible direct savings for the UK, comes at a cost to the UK economy, and poses significant humanitarian and social costs in many poor countries. Aid delivers good value for money. Every £1 spent on aid delivers at least triple its value in the aid recipient regions.
• In addition, when we take international spillovers of aid into account, well-directed aid delivers a net positive return to the donor countries. Every £1 of ODA that is restored over the period 2021/22-2023/24, can be expected to provide recipient regions with the equivalent of £2.98-£5.31 in goods and services, and raise UK GDP by 1-13 pence. The estimates suggest that the decision to cut the UK ODA budget has cost in the range of £322 million to £423 million in lost UK exports, while up to 1.5 million more people in sub-Saharan Africa may suffer hunger as a result.

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