After every previous financial crisis in a donor country since 1970, the country's aid has declined. This was true after the Japanese real estate bubble burst in 1990; and after the crisis in Finland, Norway and Sweden in 1991. After the Nordic crisis, Norway's aid fell 10%, Sweden's 17% and Finland's 62% (graph data available from Luc Laeven and Fabian Valencia's IMF Working Paper).
It would appear that history is repeating itself. This week, Ireland became the first major European donor country to announce that it will cut its overseas aid budget due to diminishing resources. A official statement from the Irish government observes that:
The Government has taken the difficult decision to reduce the total budget provided for Ireland’s Overseas Development Assistance in 2009 from €891million to €796 million. The size of our aid programme is linked to our own economy, and specifically to GNP growth. Our intention is that by taking action to curb public expenditure at this time, we will establish a platform for the resumption of strong economic growth, and further significant expansion of the Government’s development programme in years to come.
To this Owen Barder adds that other donor countries - namely: Italy, Germany, Portugal, Greece and France - will not meet their aid commitments either. U.K. aid is estimated to decrease by $41bn over seven years (see corresponding paper here).
Yet all is not doom and gloom in the world of donor assistance: don't forget about China. Despite its own economic downturn, China is as eager as ever to continue its African investments. Just this week China Sonangol International announced that it would buy a 49% stake in Air Tanzania. Hu Jintao is making his first Africa trip of 2009 next week, too, where he will likely push his rhetoric of "friendly relations" and "win-win" cooperation. So while some Western donors are limiting their aid, China is forging ahead - not at full throttle, perhaps, but at quite a respectable speed. At least on the development front, the global financial crisis may provide China with the ideal opportunity to flex some developmental muscles (in Africa). Hello, hello, indeed.