By Aniket Bhushan, Lance Hadley, and Bridget Steele
Published: May 11, 2021
On April 19, 2021, the Government of Canada (GoC) tabled its first Federal Budget in over 2 years. This analysis looks at the implications for Canada’s support for development spending.
- There is some uncertainty surrounding the forward path of Global Affairs Canada’s (GAC) development spending, stemming primarily from lack of transparency – on the IAE base level, roll-over of unspent balances, funding status of known and expected large commitments (e.g. frontloaded multilateral replenishments, international climate finance in the lead up to COP26).
- However, our analysis suggests GAC has higher spending room than available data suggest (or the department seems to have firm plans for).
- This may complicate things for outside advocates calling on the government to further increase spending.
- Data analyzed below confirm earlier predictions. 2020-21 was a significant outlier in terms of Canada’s development spending and is not an indication of trend change.
- We project that GAC will revert to its post-FIAP pre-COVID spending trend of modest annualized growth (3.6-4% CAGR). Compared to other major donors (e.g., UK/FCDO where budgets have been cut and could fall further), this is relatively positive news in terms of support for development.
GAC Spending Trend: Post-FIAP, Pre-COVID
GAC spending has increased modestly since the adoption of the Feminist International Assistance Policy (FIAP) in 2017. GAC-development (ex-COVID) is approx. a CAD$4.5billion/annual department. Figure 1 indicates trends in total international assistance (a concept wider than ‘official development assistance’) from GAC, since the launch of FIAP and coming in to the COVID crisis.
These data, on expenditure (not budgetary) basis, show that GAC spending increased at approx. 3.6% CAGR, 2017-18 to 2019-20.
More importantly, GAC’s spending breakdown has shifted significantly. And we expect it will need to shift further. Notably, GE3 (gender specific spending) increased at a rate of 62% CAGR, quadrupling since the launch of FIAP.
We estimate GE3 spending needs to grow further by approx. 60% and may reach an annualized level of CAD$750mn-765mn by 2022-23.
2020-21 COVID outlier
2020-21 was a major outlier. The government allocated approx. CAD$2billion (approx. CAD$1.6billion in new spending and the rest in ‘pivoted’ spending) to international COVID response. This is the largest increase in development spending in a fiscal year in Canadian history.
However, as the data below on the department’s authorization requests indicate, 2020-21 was a major outlier. GAC (total) went from an approx. CAD$7billion annualized department to approx. CAD$9.3billion driven almost entirely by one-off development spending which increased from the CAD$4.5billion annual level to approx. CAD$6.4billion, almost entirely attributable to COVID response (Figs 2 & 3).
Since the start of COVID and up to March 31, 2021, we find COVID19 commitments are visible across approx. CAD$860million of GAC programming (this is the total project budget value figure, as opposed to COVID specific expenditures, which would be lower and happen over time).
Not withstanding other additions (Budget 2021, discussed below), GAC spending is expected to ratchet back down back to the approx. CAD$4billion annual range.
A few caveats are important:
- Even with the expected drop, planned spending for 2023-24 is higher relative to 2021-22 by approx. 2.2%. This is because known increases are yet to work through the system.
- Actual final expenditures (ex-post) are almost always higher than ex-ante budget forecasts.
- A key reason is development spending is significantly impacted by unforeseen requirements. These are funded via 3 main supply bills (Supplementary Estimates A, B & C) through the course of the cycle, and add to final expenditures. As does the Federal Budget which typically includes additional measures and is tabled after the Estimates.
- This ‘forecast-expenditure gap’ can be seen most dramatically in the case of COVID. Planned spending for 2020-21 was approx. CAD$4.8billion, however actual expenditures are expected to be CAD$6.4billion. It was also the case prior to COVID. E.g., planned spending for 2019-20 was approx. CAD$3.9billion, yet actual expenditures came in at approx. CAD $4.5billion.
- Allowing for these factors and other unknowable additions, we estimate that after one-off COVID spending has worked through the system GAC will return to its pre-COVID trend of approx. 3.6-4% CAGR.
- By 2023 we expect GAC-development to be approx. CAD$5billion annualized.
Lack of transparency limits analysis but GAC likely has significant budget room
At least 3 key gaps limit public understanding and analysis of GAC’s expected spending:
- The IAE base level is unknown.
- IAE balances at the end of the fiscal cycle are not known publicly.
- The funding status and source of known/expected large commitments are not known clearly.
These factors have an outsized effect during outlier periods. GAC can ‘roll over’ certain unspent funds (rules differ whether balances are in programing or capital/current costs, whether balances are in the crisis pool or in other areas). This likely affected spending even coming into fiscal 2020-21. COVID hit in March 2020 right at the end of the Canadian fiscal year exactly at the time when the bulk of development spending is committed.
This is clear from contract level data (Fig 4). The value of contract approvals in the final fiscal quarter of 2019-20 / first calendar quarter of 2020 (Jan-Mar) at approx. CAD$1.4billion, was significantly lower compared to the same period in previous years (approx. CAD$$2.5billion-$2.7billion). Contract approval totals for March 2020 were about a third of the level in March 2019.
The question that arises is how end balances were treated, whether and what amounts were ‘rolled over’ into fiscal 2020-21.
Our analysis indicates a significant and understandable drop-off in GAC’s new programming approval cadence in 2020-21. Large multilateral agreements were approved as normal and large COVID response commitments were likewise. However, the overall total agreement value for fiscal 2020-21 (approx. CAD$3.3billion) declined compared to 2019-20 (approx. CAD$3.7billion). [Note: these figs are for total ex-ante budgets, and not expenditures. We estimate nearly 50% of expenditure in a fiscal is typically on existing operational commitments. Nevertheless the new agreement data provide some insight into future budget room].
The largest approvals in 2021 so far have been:
- IFAD climate finance loans (CAD$190mn);
- AfDB climate fund (CAD$133mn);
- ICRC (CAD$61mn)
The largest approvals in 2020 were:
- Global Fund (CAD$930mn);
- Grand Challenge Canada renewal (200mn);
- CEPI COVID19 vaccine research (CAD$150mn);
- WFP COVID response (CAD$108mn). [See figs below].
Our takeaway is that it is likely GAC was unable to allocate/commit all of its extraordinary international COVID response allocation by March 31, 2021. Some of this may have been allowed to roll-over into future spending.
In addition, Budget 2021-22 adds resources (beyond those discussed above) in the amount of approx. CAD$1.4bn over 5 years. However, much of this was previously known/expected (e.g., multilateral commitments to the AfDB and IFC). Other areas (e.g., FinDev) do not entail net fiscal cost (as they come from EDC’s balance sheet/retained earnings).
The main increases are on the humanitarian side (IHA, Rohingya, Venezuela, Middle East) and to further COVID response (ACT accelerator) (see Fig 7).
The funding source and status of known/expected commitments is another transparency gap. Key areas include earlier than planned World Bank IDA20 replenishment, and the renewal of international climate finance expected in the lead up to COP26. It is not easily knowable how much of the above is funded out of “new” allocations vs. past available room.
Combined, these factors suggest GAC may be sitting on a larger budget than available data suggest. We conservatively estimate GAC to return to its pre-COVID trend of approx. 3.6-4% CAGR after COVID spending has worked through the system which will take some time.
This scenario complicates messaging for advocates calling for yet more spending. Emphasizing more effective spending will be key. As will linking the same to tangible progress out of the COVID health crisis globally and especially across developing countries.
Fig 1. Total GAC International Assistance, post-FIAP and pre-COVID trend
Fig 2. Treasury Board Secretariat Main Estimates / GAC 2021-22 Departmental Plan (DP)
Fig 3. Projected Development Peace and Security spending from GAC 2021-22 Departmental Plan (DP)
Fig 4. GAC disclosures, by contract value, agreement start date (calendar quarter and monthly totals)
Fig 5. Top 20 Agreements by value in 2021 (fiscal Q4 2020-21, Jan-Mar 2021) – data as of May 4, 2021
Fig 6. Top 20 Agreements by value in 2020 (Apr-Dec 2020) – data as of May 4, 2021
Fig 7. Budget 2021, Net Additions
|Int covid response||375||–||–||–||–||375||375|
|Int Fin Corp||224||–||–||–||–||224||224|
|African Dev Bank||141||141||–||–||–||283||81|
|Ombudperson for responsible enterprise||3||3||3||3||3||16||16|
Source: Budget 2021-22 (via P. Hagerman, B. Tomlinson)
Fig 8. ODA and ODA/GNI projections
Source: B. Tomlinson, Aid Watch; extended by CIDP (note: above are on Canadian fiscal not calendar year basis, and therefore may differ markedly from the OECD-DAC)