The Libya connection: more and worse aid

Despite the heavy cuts for the development cooperation in 2009 Budget bill and the expected low levels of debt cancellations, Italy aid could have an unexpected quantitative boost by the Italian foreign policy. The Parliament has just started discussing the ratification of the Treaty between Italy and Libya. The agreement binds Italy to financially support various aid-reportable activities in Libya (roads construction, and students grants) for 20 years. Thanks to this Treaty, Italian ODA will increase by around 200 million euro each year ( around 0.012% of the Italian GDP) with predictable and additional money to the current ODA budget. In fact, the Parliament is also supposed to increase a profit-tax on oil-firms, in order to meet the Treaty financial requirements.

On the negative side, this additional money is going to worsen the quality of Italian aid, particularly its tied share- still 40% of the Italian bilateral ODA in 2007. As a matter of fact, all ODA–reportable interventions are 100% tied to the implementation by Italian firms. The possible injection of 200 million euro in tied aid will have an impact, as it represents 60% of the average 2006-07 Italian tied commitments. Finally due to the low levels of the Italian bilateral aid, this 200 million euro will also worsen the poverty focus of the whole Italian development cooperation. As the Italian annual country-allocated aid between 2006-2007 was around 400 million euros, the future Italian aid shares of Sub-Saharan Africa and the Least Developed Countries are going sharply to decrease.