Comment le Royaume-Uni peut-il combler le trou de l’APD : une modeste proposition d’ingénierie financière

Publié le: 17/03/25

Par: Stephen Paduano, 

By Stephen Paduano

On 28 February 2025, Prime Minister Keir Starmer announced a significant reduction in the UK’s Official Development Assistance (ODA): from 0.5% to just 0.3% of Gross National Income, translating to a projected £6.2 billion cut to the UK's aid budget.

Download THE Policy Note
Cover
Photo by Sabrina Mazzeo on Unsplash
Photo by Sabrina Mazzeo on Unsplash

The global humanitarian and development consequences of these cuts, alongside other cuts from major donors, will be significant. The political and geopolitical spillovers and setbacks for the UK and its partners -- ranging from heightened instability in fragile states to an increase in refugee flows to a weakening of partnerships in the developing world -- threaten to be large as well.

However, through responsible forms of fiscally-neutral financial engineering the UK can restore its international economic commitments, mitigate the consequences of its aid cuts, and re-score its ODA spending to return to a 0.5% target.

This policy note proposes two fiscally neutral uses of the UK's Exchange Equalisation Account (EEA) that are fully compliant with the Exchange Equalisation Account Act and existing EEA operations:

  • Using the EEA to fund Concessional Partner Loans to IDA

  • To make IDA Bond Purchase Commitments

Both operations would provide deep relief to IDA's balance sheet and help IDA scale up its highly concessional lending to low-income countries that are otherwise negatively affected by ODA cuts.  To the extent that IDA itself is negatively affected by ODA cuts -- given serious concerns about the UK, US, and other shareholders reneging on pledges as part of the $100 billion IDA21 Replenishment -- these proposals would help insulate IDA from the balance sheet pressures associated with shortfalls in donor funding.

The note provides greater detail on IDA's structural asset-liability mismatch (borrowing at market rates and tenors but lending at 0-1.5% for up to 50 years), as well as greater detail on the mechanics of the UK's fiscal policy to demonstrate how our proposals require issuing no new debt, raising no new takes, and involve no interaction with the UK's fiscal policy accounts.

Download THE Policy Note