RPT-FEATURE-Downturn to cost billions in aid to world's poor

LONDON Thu Feb 26, 2009 1:04pm GMT

LONDON Feb 26 (Reuters) - The cost to aid budgets of the world economic downturn is headed for billions of dollars, slashing assistance to the world's poorest people just as it becomes harder for them to make money for themselves.

In the United States, the heads of more than 50 groups in the InterAction coalition, whose 175 members manage a total of $9 billion annually, say they expect donations from individuals, businesses and foundations to fall by about $1 billion this year.

"If this (recession) goes into 2010, we will be seeing a significant reduction in delivery of programmes in the world's poorest areas," InterAction president Sam Worthington told Reuters, adding weaker organisations may fall by the wayside.

British-based charities are suffering additionally from the pound's decline, making their money worth less abroad.

The squeeze has come as the needs of many crisis-hit communities, such as those in Zimbabwe, Sri Lanka and Sudan's war-torn Darfur region, are rising.

"The problems in Darfur haven't changed one iota because of Western bank failures. If anything, it's just gone off the agenda," said John Low, chief executive of the Charities Aid Foundation (CAF), which helps charities manage money.

A CAF survey in January of 322 British charities -- including groups working on overseas aid -- found half expected their income to fall in the next year and 41 percent had seen their income drop in the previous three months.

Groups in Africa, which receive much of their funding from international charities and government donors, are worried about the effect on their work.

They include Uganda's National Guidance and Empowerment Network of People Living with HIV/AIDS.

"With HIV, the major effect of the global financial problems is fear: fear that there might be less funds committed to the campaign and fear that there might be a shortage of essentials like drugs and condoms," said director Major Rubaramira Ruranga.

MORE RELAXED

In South Asia, the mood is calmer, partly because most countries are less reliant on international donors than in Africa, where aid makes up close to half some national budgets.

Agencies in India told Reuters they had secured resources for the coming year but were cautious.

"It is important to ring those alarm bells of concern at this time because across South Asia there are people who are already teetering on the edge and a sustained wound to the head would be fatal," said Sarah Crowe, regional head of communications for the U.N. Children's Fund.

The World Bank has warned that almost 40 percent of 107 developing countries are highly exposed to the effects of the credit crunch and up to 53 million more people are being trapped in poverty as economic growth falters.

The British-based agency Oxfam points out that a fall in remittances from migrant workers will have a huge effect in countries such as Bangladesh, where one family in every village is dependent on them.

Experts say it is hard to predict how far the global downturn will cut into aid budgets. Italy has halved its 2009 assistance and Ireland has cut 17 percent from its overseas aid in three reductions since July.

"We realise that the government finds itself in extremely difficult circumstances with tough choices to make, but it is shocking that the option taken has hit at the poorest and most vulnerable," said Tom Arnold, chief executive of Dublin-based agency Concern Worldwide.

Aid contributions from European Union countries, which had been expected to top $92 billion in 2010, could be $15 billion to $25 billion less because of currency weakness and lower growth, according to Nick Highton of the London-based think-tank Overseas Development Institute.

"Just when poor countries are most going to need it is when rich countries draw in their horns," he said.

POUND'S WEAKNESS

British charities working overseas say the most harmful effect of the crisis so far has been the weakness of the pound. The CAFOD agency estimates the dollar value of British government aid may fall by as much as $41 billion between 2008 and 2014.

Groups funded by CAFOD in developing countries have already seen the dollar value of their sterling grants drop 25 to 30 percent compared with the middle of last year. "We're basically passing on the pain to our partners with profound apologies," said policy adviser George Gelber.

In Kenya, Charles Mwangi Waituru, country coordinator for the Global Call to Action Against Poverty, says the financial crisis will slow progress towards U.N. benchmark targets for reducing extreme poverty, which have a deadline of 2015.

"We are going to see drawbacks in key campaigns against poverty, disease and the new burden of climate change," he said. "In the long run the Millennium Development Goals will not be achieved in the stipulated time frame."

In the country's Rift Valley, 24-year-old Michael Ole Sayo runs a small agency that runs projects for Maasai nomads.

They have funding requirements of a few thousand dollars each, a tiny drop in the multi-billion-dollar aid industry. They are Ole Sayo's life's work.

"Most of the programmes are donor-funded. So if the donors don't get money we, who are the last kind of grassroots people, are not getting funding either," he said.

One of a new generation of educated young Maasai equally at home in their parents' remote huts and the internet cafes of Nairobi, Ole Sayo has given up several job opportunities in the city to stay and work with the community.

His projects include building rainwater collection tanks at a school, helping Maasai bead workers market their crafts, increasing awareness of female circumcision and improving inoculation and water supplies for cattle.

"It is a new problem," he says, "one I'm not sure how we can fight."

Some charity fundraisers argue lean times will result in better accountability.

Caroline Underwood, director of partnerships for Save the Children UK, expects businesses to put more pressure on aid groups to use their donations wisely and creatively.

"Charities will have to work smarter," she said. (Additional reporting by Frank Nyakairu and Tom Kirkwood in Kenya and Nita Bhalla in New Delhi; Editing by Andrew Dobbie and Sara Ledwith)