Chair of the Committee, Rt Hon Sir Malcolm Bruce MP, said:
"We are worried that pressure to meet targets to increase overseas development aid could lead to DFID making poor spending decisions."
DFID will receive its largest budget increase in 2013, as spending on ODA rises from 0.56% to 0.7% of Gross National Income to meet commitments made by the previous Government at the Gleneagles Summit and set out in Coalition Agreement.
DFID rescheduled payments of £450 million planned for 2012, including a £300 million payment to the World Bank scheduled of April 2012, in order to meet the UK’s Official Development Assistance (ODA) target at the end of 2011. DFID also increased by £130 million the value of payments on a number of other projects.
Sir Malcolm said:
"The Department should be prepared to miss aid targets where there are delays or cancellations to its planned projects and it does not have good value alternatives.
About two-thirds of DFID’s expenditure in 2011-12, including nearly 40% of its bilateral spending, went through multilateral organisations. This represents a major change in recent years and has been accompanied by a decline in direct aid to recipient Governments. DFID argues that the change is not a reflection of its need to spend money quickly, but a result of the reduced need for budget support in countries with rising tax bases and improved financial management, as well as its focus on fragile states."
The report warns that multilaterals have high costs and at times limited effectiveness. The Committee is calling on DFID to carefully examine its growing multilateral expenditure and ensure that it has thoroughly examined other options such as greater use of local NGOs and sector budget support. The report says DFID should ensure that its bureaucratic procedures do not prevent it from making use of effective, small NGOs to undertake projects.
DFID has switched expenditure from low income to middle income countries, in part because several countries with a large number of poor people have recently graduated to middle-income status. The Department's policy towards middle income countries varies: it is ending grant aid to India in 2015, but programmes in Nigeria and Pakistan are due to grow rapidly. The report recommends that the Department establish and make public the criteria it will use to inform decisions of when and how it should cease to provide aid.
Rt Hon Sir Malcolm Bruce MP, said:
"As we give more and more aid to middle income countries, it is increasing important that the Government is consistent and transparent in its decision-making.
Many of these countries have large numbers of poor people, so continued aid spending is justified, but for the public to have confidence the Government needs to be open about the reasons it is giving aid to some countries and not to others."
The MPs urge DFID to consider establishing a Development Bank - that could offer concessional loans alongside the Department's traditional grant aid - as a solution to the concerns raised in the report. This would free DFID from the constraint of having to ensure that cash was spent by the end of the financial year.
DFID has addressed concerns that it did not have adequate numbers of staff to spend cost-effectively its budget and is rapidly increasing the number of professional advisers and the proportion of its staff working overseas. However, the MPs are still concerned that it does not have the staff to oversee the huge expenditure of UK taxpayers’ money undertaken by multilaterals.
The Committee remains concerned that DFID's has ended its bilateral programme in one of the world’s poorest countries, Burundi, and is urging the new Secretary of State to re-instate it.