Charles Kenny

@danbanik.bsky.social !

Aid Isn’t Fairy Dust Long-term changes and the lessons of the past decade suggest rhetoric around what aid can accomplish needs to be dialed down. It is largely macroeconomically irrelevant in middle-income countries and ...

CGD Note: Aid Isn't Fairy Dust.

www.cgdev.org/publication/...

So focus aid in the poorest countries –promoting growth, fighting poverty and the diseases of poverty. That’s where donor country voters want aid to be spent and it is where aid works. Aid isn’t fairy dust, but in those countries it can still achieve miracles.

Aid still has vital role: promoting development in the world’s poorest countries. In those economies, there is evidence that it can foster economic growth. And even aid critics support health assistance, plausibly saving millions of lives a year, concentrated in LICs

Deals involving private participation in transport, waste, energy, and water and sanitation infrastructure in developing countries as a whole peaked in 2012 at a total value of $157 billion. In 2023 it was just under one-half of that level.

At macro level, arguably a weak positive relationship between aid flows and FDI (more convincing in LICs). But limited role of aid in sustaining private flows suggested by the fact that, in 2023 and 2024, net private flows to developing countries as a group were negative.

As to leverage, despite increased attention to domestic resource mobilization, the overall relationship between aid flows and domestic tax revenues remains, if anything, slightly negative.

ODA now on average worth less than a quarter of a percentage point of the income of middle-income countries (middle income economies that see aid receipts worth more than 10% of GNI : Ukraine, West Bank and Gaza, 11 small island states).

In 1960s, 55 countries saw aid receipts worth more than 10 percent of GNI. By 2021 the number receiving more than 10 percent of GNI in aid was down to 22 countries, or 17 percent of recipients.

2nd, that SDGs/climate mean we need a lot more investment backed by aid.

Thesis and antithesis achieve synthesis in idea billions in aid can foster trillions in investment by catalyzing, leveraging, and crowding in.

Sadly not.

The last few years have seen many commentators in global development embracing two contradictory ideas at the same time. 1st, that we are increasingly in a “post-aid world”—at the aggregate, ODA is less significant compared to domestic taxes, private flows, and remittances.

New CGD Note: Aid Isn't Fairy Dust.

The need for a wholesale rethink of the role of aid based on just the past 12 months exaggerated, but long-term changes as well as lessons from the past decade suggest rhetoric around what aid can accomplish needs to be dialed down. (Thread)

Two new CGD papers on World Bank climate finance, by @euanaritchie.bsky.social and me. We agree ‘mitigation’ projects overwhelmingly look designed to be ‘development first, mitigation... second?’ Thread including bonus paper by @jonathanbeynon.bsky.social …

Small island states received six times more adaptation finance per head than LDCs. This despite SIDS per capita income of $9700 8x higher than LDC average. There is virtually no relationship between adaptation finance per head and climate vulnerability indices.

www.cgdev.org/sites/defaul...

Related: A new paper by Jonathan Beynon looks at link between vulnerability to climate change and who gets adaptation finance. Answer: most vulnerable to climate change are the poorest countries, the most generously provided with climate finance are small island states.

It also remains unclear from World Bank project documents why projects are tagged a given percentage climate finance. And it is clear that what is counted as ’mitigation finance’ is a terrible, awful, no-good measure of mitigation *impact.*

And even at the World Bank, despite comparative transparency, it remains very difficult to understand what the impact of climate targets and shadow carbon prices and so on have been on Bank lending –let alone on greenhouse gasses averted.

The Crisis of Climate and Development Finance On May 22, 2025, CGD senior fellow Charles Kenny delivered remarks at the Oxford Martin School, where he is a visiting fellow. His speech, “The Crisis of Climate and Development Finance," focused on t...

Suggests that, if (like me) you concerned that climate finance is eating effective development finance, that concern is probably less valid at the World Bank even if (i) it appears true more broadly (ii) the fear becomes bigger as climate finance grows.
www.cgdev.org/publication/...

But also no strong pattern that a higher mitigation finance share in a World Bank project is associated with a higher increase in economic returns when accounting for a shadow price of carbon: i.e., that a larger share of mitigation finance means a bigger mitigation impact.

There doesn’t seem to be any strong relationship between the percentage of World Bank project finance tagged as climate finance and local economic rates of return (excluding the shadow price of carbon) –in that sense, there no climate-development tradeoff in Bank finance.

…or a whole project that passed the hurdle return purely on the grounds of the shadow cost of carbon --although there is some evidence of low-emissions investments that pass a hurdle rate, but may not be lowest cost in terms of energy production.

Looking at all World Bank projects that include climate finance in 2024 and the predicted economic rate of return they would deliver, I didn’t find any project that would clearly have failed the hurdle rate of return taking into consideration shadow cost of carbon…

Turning to sectors, a World Bank focus on climate concerns would suggest more financing for infrastructure (and in particular electricity) and agriculture. But these sectors don’t account for an increasing percentage of World Bank financing over past 10 years (if anything the reverse) --see picture.

You might expect a focus on mitigation would foster more lending in high-emitting upper middle income countries and an adaptation focus would push lending to the poorest countries that are most affected. But World Bank country allocation mechanisms haven’t really changed to account for climate.

My paper asks ‘"do World Bank climate targets and carbon prices change the World Bank portfolio?" and comes back with the answer “maybe yes, but at most marginally.”

www.cgdev.org/sites/defaul...

Euan's paper: World Bank Climate Mitigation What Gets Measured and What Gets Missed

www.cgdev.org/sites/defaul...

Euan’s paper suggests some reason for doubt when it comes to the numbers for the few mitigation projects with an estimated emissions impact, including back of the envelope calculations which are extremely generous is assigning credit.

Most World Bank mitigation finance commitments are for projects that do not track impact on GHG emissions as a performance indicator – and just 4% of commitments to LICs with a mitigation component track GHG emissions.

Euan’s paper finds Mitigation projects overwhelmingly aim to increase electricity generation; reduce transport time; increase energy access. in LICs and LMICs, three quarters of 100 percent-mitigation projects are about energy capacity, access and/or efficiency.

As introduction, worth noting a focus on World Bank is driven by importance but also the fact that it is comparatively transparent about what it is doing, and I think both papers benefited from feedback from WB staff –thank you.