Falling dollar erodes aid agencies’ spending power

Falling dollar erodes aid agencies’ spending power
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First Published: Fri, Sep 14 2007. 12 30 AM IST

Hard time: A 7 May picture of children depicting the ribbon—the symbol of AIDS—during a candlelight rally organized in Guwahati by Francois Xavier Bagnoud, an agency that encourages support for childr
Hard time: A 7 May picture of children depicting the ribbon—the symbol of AIDS—during a candlelight rally organized in Guwahati by Francois Xavier Bagnoud, an agency that encourages support for childr
Updated: Fri, Sep 14 2007. 12 30 AM IST
London: For aid agencies with dollar budgets in the developing world, the weakening US currency gives them less to spend and may mean they have to cut back on much-needed projects.
The greenback hit a record low against the euro on Wednesday and has hit a
Hard time: A 7 May picture of children depicting the ribbon—the symbol of AIDS—during a candlelight rally organized in Guwahati by Francois Xavier Bagnoud, an agency that encourages support for children orphaned by the disease. Long-term planning has become difficult for dollar-dependent relief planners.
fresh 15-year low against a basket of currencies.
For relief planners dependent on dollar donations, long-term planning has become difficult because of the fall.
“It has a pretty substantial impact,” said Radha Muthiah, assistant country director for CARE International in India. “It may affect the extent of our programmes and the reach we have on the ground.”
The US is the world’s biggest aid donor, and multilateral aid from agencies such as the International Monetary Fund (IMF) and World Bank is often in dollars. So is most funding from growing donor China.
Analysts said the currency could fall further to an all-time low next week on the back of chaos in the financial markets and weak US economic data that is fuelling recession fear.
Nearly 60% of CARE’s India funding is in dollars that mainly comes from US government agencies and private donors such as the Bill & Melinda Gates Foundation.
Most of the aid agency’s budgets assumed an exchange rate of Rs43-45 to a dollar. Now, one dollar only buys Rs40 and in future proposals CARE is budgeting for, that amount might further fall to around Rs37.
Long-term projects, devised in the aftermath of the 2004 tsunami—which sought to help improve the livelihoods of people through skills training or running workshops for women—faced the risk of being scuttled, Muthiah said.
“We are going back to donors and saying that things have changed and asking for more money if we can,” she said. “Some are more flexible than others.”
With the exception of some states such as Zimbabwe that are in economic crisis themselves, many emerging market currencies are strengthening, including those in Africa—the world’s poorest continent and largest recipient of aid.
“We are seeing a strengthening trend in a number of African currencies,” said Razia Khan, chief Africa economist at Standard Chartered Bank. “It is arguably a good thing, but when it comes to traditional sources of funding such as donor financing, then, if it is in dollars, it will not go as far.”
However, Khan said, a general shift from multilateral funding by dollar-based agencies, such as IMF, to bilateral donations from countries or groups, such as the European Union, which donates in euros, had reduced exposure to dollar downfalls.
Rising commodity prices, particularly of food, and higher freight rates may also make it more expensive for aid groups to fund themselves.
But with stronger currencies, countries themselves may be in a better position to buy commodities and fuel, potentially reducing dependence on others. Many African countries are commodity producers and are seeing their incomes rise.
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First Published: Fri, Sep 14 2007. 12 30 AM IST