No Magic Wand: Rapid Review of the New UK International Development White Paper
The UK government has released its much-awaited International Development White Paper on Monday, 20 November 2023, the first White Paper for 14 years, entitled ‘International Development in a Contested World: Ending Extreme Poverty and Tackling Climate Change’. It is the first White Paper to be published since the UK merged its previously stand-alone Department for International Development (DFID) and the Foreign and Commonwealth Office (FCO), forming the new Foreign, Commonwealth and Development Office (FCDO) three years ago. The White Paper sets out a roadmap for the UK government to respond to global sustainable development challenges and progress towards attainment of the United Nations (UN)’s Sustainable Development Goals (SDGs) by 2030.
A rapid review of the White Paper indicates a broadly positive and collaborative strategic approach to international development and a departure from the more muscular, self-interested tone of international development approaches in recent years. Instead of emphasising role of official development assistance (ODA) in pursuing unilateral economic and foreign policy agendas, the White Paper strikes a more cooperative tone of working with developing countries, communities, non-governmental organisations (NGOs) and international organisations in receipt of ODA as well as other bilateral and multilateral development agencies to resolve global challenges.
The White Paper outlines the enormity of the multiple challenges facing the world today and the complex intersections between different areas of need. There is a recognition of scale of development challenges faced, including rising levels of sovereign indebtedness, failure to meet the SDGs and significant and real challenges of the climate and biodiversity crisis. It places the UK’s role as a bilateral donor and financier in this context and the importance of bolstering up financial resources to address these challenges.
However, despite these broad strategic statements and nods to an existing suite of supportive policies, there are no radical departures from what the UK has been doing bilaterally or multilaterally and no significant substantive policy or legislative proposals planned. The White Paper is less committal than news reports have suggested in run-up to its release and there are many exhortations for other actors (for example, multilateral development banks or MDBs and the private sector) to do more but less commitment to do more itself. This may well be a reflection of the timing of the White Paper — less than a year before a general election where there is likely to be a change of government — and the need to secure cross-party support for the proposals.
Commitment to Multilateralism and International Law
The White Paper’s commitment to multilateralism and respect for international law is welcome under current circumstances, and so is a commitment to ‘[p]atient & mutually respectful relationships’ with developing countries and pledges to respond to ‘locally owned priorities and contexts’ rather than maintaining a top-down approach to aid policy and delivery.
There is a link between conflict and sustainable development, recognising that ‘[c]onflict state fragility and instability are on the rise and holding back development’ with significant human costs. The White Paper restates the UK’s role in ‘integrating diplomatic, development and security approaches to prevent and resolve conflict, and create conditions for enduring peace’. This public commitment to upholding the principles of the UN Charter, international human rights law and international humanitarian law in the context of armed conflict needs to be followed up by government action, including calls for a ceasefire in Gaza and other ongoing conflicts, as well as initiating and supporting measures to hold parties accountable for violations of international humanitarian law designed to protect civilians (see section 1.5 of the White Paper).
There is a recognition in the White Paper that reforms to the multilateral system and the institutions of global governance is important to respond effectively to global challenges. There are commitments to support proposals for reform of the UN Security Council to include broader permanent representation from Africa and other major developed and developing countries as well as reform of the international financial architecture to enable greater voice and representation from developing countries, especially that of low-income countries within the governance structures of the International Monetary Fund (IMF) and the World Bank Group.
At the same time, the White Paper maintains the value of the UK’s single-seat representation at the IMF and the World Bank Executive Boards and does not propose substantively changing this asymmetrical governance structure privileging developed countries. It argues that the UK’s expertise and vast network of global embassies and domestic policy experts affords it ‘significant influence’ and leverage at these institutions to shape global development finance policy and practice (see Box 4 of the White Paper). This outsized influence will be used to push for reforms to operational framework of MDBs, including implementing the G20’s MDB Capital Adequacy Frameworks (CAF) and scaling up the use of private and blended finance, including the development of ‘innovative financial instruments’, to fund sustainable development and other global public goods (see further discussion below).
ODA Allocation, Distribution and Governance
The White Paper reiterates the UK government’s commitment to spending 0.7 percent of its gross national income (GNI) on ODA enshrined in the International Development (Official Development Assistance Target) Act 2015 but only ‘once the fiscal situation allows’. This means that the current policy of allocating 0.5 percent to the aid budget announced in 2021 will still apply for the foreseeable future. There have been significant criticisms of these aid budget cuts, with major NGOs warning that these have resulted in swingeing reductions in services provided in developing countries, risking health, education and emergency support to vulnerable populations.
The White Paper proposes a target of at least 50 percent of all bilateral ODA to be spent on least developed countries (LDCs) and commits to fulfilling its pledge to spend £11.5 billion in international climate finance from financial years 2021–22 to 2025–2026, with at least £1.5 billion ringfenced for adaptation funding in 2025.
Numerical figures however masks policies on how and through which channels ODA is distributed and what form it takes. Within the spend targets are various policies which may divert ODA away from SDG and climate financing needs. Concerns have regularly been raised on the diversion of ODA to fund expenditures outside the remit of international development and by non-FCDO (and previously DFID) departments. In 2022, the share of ODA funding going to non-FCDO departments increased to almost 38 percent of the UK’s aid budget, increasing from an almost 25 percentage share in 2021. Almost half this spend (18.7 percent of ODA) was spent through the UK’s Home Office, with the majority of this expenditure and that of other government departments, spent on the cost of supporting refugee and asylum-seekers within the UK.
The ‘whole of government’ approach to delivering aid (restated in the White Paper) is welcome in terms of policy expertise and mobilising partnerships in trade, investment, science and other arenas but risks diverting financial resources to other departments to service other public policy objectives, including the aforementioned in-house refugee and asylum seeker costs as well as external security and border control measures and academic research and research activities (even if such research is centred on and in ODA-eligible countries). More recently, the UK had sought unsuccessfully to count its rechannelling of SDRs to developing countries as ODA. It has not committed to channelling more than the 20 percent of its SDR allocation outlined in the White Paper although it has committed to exploring further ‘viable options’ for such rechannelling.
Part of this allocative problem stem from the so-called ‘modernisation’ of the OECD Development Assistance Committee (DAC)’s ODA statistical framework which broadened the scope for reporting more ‘peace and security’ and ‘in-donor refugee costs’ as ODA. But it is also a result of non-FCDO government departments leveraging statutorily ring-fenced ODA resources to meet their expenditures in an era of fiscal austerity and overall reduced government expenditures. Other costs that and have counted as ODA under OECD DAC ODA reporting guidelines are debt relief and the use of private sector instruments (see below) as well as excess COVID vaccines although a line has been drawn in relation to counting the rechannelling of SDRs as ODA.
A significant component of the proposed ODA spend in the White Paper is on international climate finance, with the responsibility for spending the aforementioned £11.6 billion commitment spread across the FDCO, Department of Business, Energy and Industrial Strategy (BEIS) and the Department for Environment, Food and Rural Affairs (DEFRA). Categorising climate finance as ODA undermines the UK’s commitments under the multilateral climate regime to provide ‘new and additional financial resources to meet the agreed full costs incurred by developing [countries]’ in undertaking measures to mitigate and adapt to climate change (see Article 4(3) of the UN Framework Convention on Climate Change). These are resources committed as international treaty obligations and should therefore be separate from ODA delivered as part of an aid framework which diverts expenditure from other SDG needs, such as health, education and poverty reduction.
Mobilising Private Finance for Sustainable Development
The White Paper reiterates previous UK government’s commitment to use ODA and other public financing to mobilise private finance for sustainable development and climate action and emphasising private, market solutions to sustainable development and climate change challenges. The White Paper positions the UK as a global ‘leader’ in sustainable development and ‘green’ finance and forwards proposals to leverage UK financial expertise to design ‘innovative’ financial instruments to support sustainable development and climate finance investments as well as utilising UK capital markets (the City of London) as a ‘vital conduit for portfolio investment to low-and middle-income countries’ (see section 3 of the White Paper).
The White Paper proposals exemplify the ‘private turn’ in global sustainable development and climate finance where public financing, including ODA, is being directed towards the creation of markets for sustainable development and climate investments. These interventions can include the use of ODA to provide financial or regulatory incentives to encourage and enable private, commercial and/or market solutions to overcome development and climate finance gaps. The White Paper reaffirms commitments to fund UK-based public-private partnerships (PPPs) such as the Private Infrastructure Development Group (PIDG) and ‘market mobilisation’ platforms such as MOBILIST (Mobilising Institutional Capita through Listed Products), to create so-called ‘pipelines of bankable projects’ and new financial vehicles to channel finance for sustainable development and climate action, including low-carbon infrastructure projects (see section 3 of the White Paper).
Other proposals include increasing the use of guarantees and equity investments to support public development interventions in the private sector and supporting ‘the growth of high-integrity carbon and nature markets’ and introducing or ‘scaling up carbon pricing mechanisms’ (see sections 3 and 5 of the White Paper). There are also proposals to support and scale up the use of private risk transfer mechanisms to support disaster relief and reconstruction, including after health pandemics and climate-induced natural disasters. This includes implementing and scaling up the Global Shield against Climate Risks, a public private platform to provide risk finance and social protection to vulnerable countries, as well as working with the City of London insurance market to ‘develop and underwrite’ pre-arranged finance for disaster risk management (see section 7 of the White Paper).
The UK’s development finance institution, British International Investment (BII) (formerly the CDC Group), will play a significant role in the delivery of the international development strategies of the White Paper, as an institution that is able to utilise public finance, including ODA, to work with private entities. Capital increases to the BII is drawn from the ODA budget and there have been regular increases since 2017, the latest agreed in November 2022, necessitating recent regulatory changes to increase the statutorily determined cumulative capital limits.
There is little reflection in the White Paper of the significant reservations expressed by international organisations, academics and civil society groups with this shift towards private financing for sustainable development and climate action, including legal and regulatory concerns with the use of blended finance instruments to derisk private investments and the risks of reliance on financial markets for delivering financial resources for development and other global public goods. There remains question marks over the effectiveness of DFIs and blended finance mechanisms to mobilise private capital for sustainable development and climate investments, undermining the core rationale for channelling greater amounts of ODA towards such institutions and instruments.
A recent report by the European Network on Debt and Development (Eurodad) also outlined key concerns with the increasing use of ODA-reported private sector instruments (PSIs) by OECD DAC members, including the lack of transparency relating to the development ‘additionality’ of these instruments, a diversion of ODA towards more profitable regions and countries given the nature of DFI and PPP corporate structures, and the risk of ‘tied aid’ associated with the use of these instruments where ODA and other official financing is used to procure goods and services from the aid provider.
This ‘private turn’ in development finance reiterated in the UK White Paper without legal or regulatory constraints can therefore paradoxically undermine rather than facilitate sustainable development and climate action while at the same time creating mechanisms that can weaken the UK government’s aforementioned commitment to inclusive and locally-owned development strategy. Enabling commercial (and large non-profit) private actors greater voice and influence over where to allocate financial resources and to whom can constrain national policy space and fragment development and climate policy coherence.
Limited Reforms the International Financial Architecture
Proposals to amplify the role of financial markets as sources for sustainable development and climate finance are not accompanied by proposals to reform the international financial architecture to ensure the stability and predictability of these financial flows. The privatisation and financialisation of development finance deepen countries’ exposure to international capital markets, increasing their porousness to shifting global financial conditions and the policy and regulatory responses to such developments by systematically important countries and international financial actors and networks. This has the potential of generating financial and regulatory risks not only for domestic financial sectors but also for the international financial system more generally, and can impede the resolution of financial and sovereign debt crises if and when they occur.
However, while there is reference to the international debt architecture (see below), the White Paper is silent on the reforms that are needed to the international financial system that are needed to mitigate risks that will arise with the growth of private markets for sustainable developments. These includes, among other things, risks of speculation and instability in the nascent but rapidly growing green, social and sustainability (GSS) bond markets, lack of regulatory frameworks to govern carbon markets, greenwashing in the use of proliferating environmental social and governance (ESG) metrices and the lack of regulatory oversight of credit ratings agencies (CRAs) which play an outsized role in gatekeeping access to capital, especially for developing countries.
The insertion of developing countries into the current fragmented and poorly regulated international financial system creates transmission nodes for financial and sovereign crises, compounded by the absence of any systemic process or institution to deal with sovereign debt distress when they occur. The White Paper acknowledges the impact of sovereign indebtedness on developing countries and challenges caused by an increasingly diverse creditor base where private creditors now account for 19 percent of low-income country external debt.
The White Paper therefore calls for a strengthening of the international debt architecture but does not address the problem of sovereign debt burdens in any meaningful way nor have concrete sustainable proposals to deal with these challenges systematically. Proposals are limited to supporting existing debt coordination initiatives, such as the struggling G20 Common Framework for Debt Treatments, and the promotion of contractual approaches, such as the incorporation of majority voting provisions (MVPs) in sovereign loans and climate resilient debt clauses (CRDCs) in sovereign loans and bonds, to enable more effective restructuring of sovereign debt. The UK has been at the forefront of the latter proposals, working with the International Capital Markets Association (ICMA) to develop MVP specimen clauses and pioneering the use of CRDCs in its export credits to low-income countries and small island developing states.
While every little helps to enable quicker and more efficient sovereign debt restructuring, experience with collective action clauses (CACs), introduced in the 2010s, is that contractual approaches can facilitate better creditor coordination in sovereign debt restructuring but cannot resolve crises at a systemic level. The sovereign debt architecture remains ad-hoc and fragmented, a ‘non-system’ that relies on series of negotiations between the sovereign debtor and its creditors mediated by the IMF. The protracted case of Zambia under the G20 Common Framework demonstrates the problems with sovereign debt law and governance in a complex global financial landscape without a sustainable process for tackling sovereign debt distress.
The White Paper has missed an opportunity to consider the various proposals that have been put forward to develop multilateral and national statutory approaches to improve sovereign debt restructuring, including proposals for a multilateral framework for debt workouts incorporating debt standstills and access to automatic liquidity financing (see UNCTAD’s recommendations), as well as national legislation to can compel private creditors to the table and give effect to multilateral restructuring initiatives. On the latter proposals, the UK is especially well-placed to mitigate the debt crisis in indebted countries through domestic legal responses as most debt owed by low-income developing countries that make up the most highly-distressed sovereigns are governed by English law.
Conclusion
The UK White Paper on International Development is lengthy and sets out highly ambitious strategic objectives, including in many more areas than is covered in this review. It makes forwards some positive approaches to global development cooperation and commits the UK government to working at a multilateral and cooperative bilateral level to address global challenges. However, it falls significant short of concrete and substantive proposals to tackle these challenges in a sustained and holistic way. Its unwavering belief in the private sector and financial markets to provide long-term, sustainable and predictable finance is also highly problematic given a history of market failures and financial crashes.
In particular, there is a clear disjuncture between its commitment to multilateralism and international law and its commitment (or lack thereof) to meet its international legal financial obligations (such as provision of financial resources and technology transfer under the UNFCCC and Paris Agreement) and commitment to pursue reforms to international economic law and global governance that constrain the resolution of global challenges (such as sovereign debt crises and meaningful reform of the MDB governance structures).
More importantly, the White Paper’s International Development strategy remains premised on an aid framework that places the development agenda firmly at the centre of UK foreign policy. The newly appointed UK Secretary of State for Foreign, Commonwealth and Development Affairs, former Prime Minister, David Cameron stated in his foreword to the White Paper that development is part of the UK’s ‘moral mission’ and confronting global challenges is ‘essential for our own security and prosperity’, a recognition of the strategy’s more muted but certainly discernible self-interest. Commitments to mobilise greater levels of financing to meet SDGs and climate goals must be matched by corresponding action to address national and international policy and legal barriers that constrain access to or undermine the efficacy of such resources, including reform of national and international law to facilitate more effective financing for sustainable development and climate action.
Celine Tan is Professor of International Economic Law at Warwick Law School, University of Warwick, UK, She is Co-Director of the Centre for Law, Regulation and Governance of the Global Economy (GLOBE) and Project Lead for the New Frontiers in International Development Finance (NeF DeF) and Climate Finance for Equitable Transitions (CLiFT) networks and founding member of The IEL Collective.
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