When 70% of the world’s poorest people live in nations defined as middle income, it’s time for change.
More people are living longer and living better than at any time in history. In the past 25 years alone, child mortality has declined by more than half. The proportion of people suffering from hunger has been cut almost as much. And countries like China and South Korea—once major recipients of development aid—have emerged as global-economic powers.
But some trends now threaten to slow this progress. In Europe, the refugee crisis and domestic security concerns are creating economic pressures that may lead wealthy governments to reduce their support for the poorest countries. In Africa and Latin America, nations that have relied on exports of natural resources are reeling from the drop in commodity prices, which in turn is reducing their ability to deliver essential services.
Development aid can’t by itself make poor countries grow. That comes primarily from the hard work of citizens, governments and the private economy. But well-focused support enables developing countries to do a few really important things better: provide basic health care, increase access to education, and help subsistence farmers improve crop yields.
Yet the way that the current global-aid system measures poverty could deal a setback to countries and people on the cusp of escaping it. When the system was established after World War II, major donor countries like the U.S. and international financial institutions such as the World Bank viewed poor countries and poor people as synonymous. It made sense to use a nation’s “average income” as the main factor in deciding which ones qualified for aid.
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Over time, however, a new map of poverty has emerged. Today, more than 70% of the world’s poorest people—those living on less than $1.90 per day—live in countries defined as middle income, according to the World Bank. Once countries cross the threshold from low-income to middle-income status, the grants and below-market loans that have helped them rise often come to an end. Countries with huge pockets of poverty like Nigeria, India, Pakistan, Ghana and Vietnam could lose as much as 40% of their development assistance in the next few years, a study sponsored by our foundation found.
For example, the average income in Nigeria is nearly twice what it is for sub-Saharan Africa as a whole. Yet, more than half of Nigerians still live in extreme poverty. And although Nigeria has a higher average income than countries like Ghana and Vietnam, World Bank data indicate it ranks lower across a range of human development indicators such as life expectancy, literacy, and maternal and child mortality.
Most good governments would agree that a nation’s access to development aid should taper off as it becomes better able to stand on its own. But if countries with high levels of inequality and extreme poverty lose aid too soon, good governments trying to do the right thing could find it even harder to address basic development needs and build a sustainable foundation of economic growth.
I am attending the spring meetings of the World Bank Group and the International Monetary Fund this weekend in Washington, D.C., where adapting the aid system to account for shifting patterns of poverty will be a topic of discussion. I’m optimistic that aid experts will embrace some fresh ideas now circulating. These include broadening eligibility requirements to account for health, education, and agricultural productivity, adapting the aid system to address the needs of the poorest where they are, as well as making the transition away from aid more gradual.
Developing countries must also find creative ways to increase government revenue. Even the poorest nations today fund the large majority of essential services like health care and education. But many don’t have the expertise and resources to raise more money through broad-based and effective tax collection.
One effort backed by the U.S., the U.K., Germany and more than 30 other countries will double the technical support to poor countries, helping them increase tax collection and domestic revenues. This minimal cost could significantly strengthen the efficiency, effectiveness and transparency of tax systems in poor countries.
It can be done. Rwanda—through a combination of legislation, stronger administration and more effective taxpayer registration and compliance—increased revenues by about 50% between 2001 and 2013, the Organization for Economic Cooperation and Development found.
I’ve long been an advocate of development aid because I’ve seen the impact it can have. I’m also a realist who understands that even the wealthiest countries face political and fiscal constraints that will limit their aid in the near term.
The global community must do more to address the deep humanitarian crisis caused by the Syrian war and other devastating conflicts. But it must do so in a way that doesn’t cut the most effective aid now going to the poorest countries. This includes critical support provided by the World Bank’s International Development Association; the African Development Fund; and the Global Fund to Fight AIDS, Tuberculosis and Malaria. Each deserves the multiyear funding it is seeking this year.
These institutions also need support for their efforts to adapt to the new geography of poverty. With innovative thinking, we can ensure that emerging countries with large remaining pockets of poverty aren’t set back by outdated aid policies. And we can lay the foundation for more growth in the coming decades.
This feature is written by Bill Gates and originally appeared in World Street Journal.